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was unhappy about the interest rate and the central bank’s decision in June to keep rates constant added to the problem with Cetinkaya. Markets had assumed that Erdogan did not want to take the risk of a rate cut prior to the Istanbul revote to be held on June 23 when the MPC passed its June 12 meeting without a rate cut. One of Reuters' government sources even claimed that the president and his son-in-law, Finance Minister Berat Albayrak, demanded Cetinkaya's resignation, but Cetinkaya reminded them of the bank’s independence and declined to resign. Based on the comments by the unnamed government source, it could be thought that Erdogan has given the message that the central bank is not independent, even on paper, by sacking Cetinkaya. However, the reasoning by Reuters' source does not sound logical given the track record and character of Cetinkaya as well as the current situation in Turkey. The story of a government official who resists Erdogan's demands could only be a fictional one under current conditions in Ankara.
Erdogan has actually been too honest for a long while regarding his views on the central bank's independence but markets insist on not acknowledging the situation. The Turkish government has lately been trying to transfer more funds from the central bank to deal with the booming budget deficit as a result of the ongoing elections cycle. The government aims to access the central bank's funds and to sharply cut policy rates with the dismissal of Cetinkaya, Gurses wrote, adding that the government is drawing the economy into a new vortex.
Finance minister Berat Albayrak on July 30 hit back at sceptics who say Turkey’s central bank has lost its monetary independence to the Erdogan administration. “We need to express this here: the central bank makes its monetary policy and interest rate decisions based on its data set,” he told reporters. Albayrak also said he anticipated more sharp interest rate cuts from the central bank, following last week’s 425 bp cut in the benchmark rate, the largest reduction seen in at least 17 years. That came after Albayrak’s father in-law, Turkish President Recep Tayyip Erdogan, fired central bank governor Murat Cetinkaya, arguing he had failed to follow instructions on interest rates. New governor Murat Uysal has claimed the national lender retains its monetary independence. “With the serious loosening of interest rates in Turkey in the recent period, and based on the fact that the interest rate trend will come down more clearly and strongly in the coming period, we have entered a period of interest rate cuts,” Albayrak was reported by Reuters as saying. External factors such as the US Fed and European Central Bank signalling that they are preparing for an easing cycle has helped Turkey’s central bank bring in monetary loosening without causing a depreciation of the embattled Turkish lira (TRY). Albayrak also told reporters that although the government would miss its target budget deficit-to-GDP ratio, debt levels were not a problem for Ankara. The central government budget recorded a deficit of TRY 78.58bn in the first six months of this year, official data showed. The government’s forecast for the year-end deficit is TRY 80.6bn. Parliament passed a law earlier in July paving the way for the central bank to transfer its legal reserves to the Treasury. It was seen as a move designed to help plug the deficit.
Turkey’s central bank on July 31 cut its inflation forecast for 2019 to 13.9% from 14.6%, but left next year's outlook unchanged at 8.2%. In mid- June, Turkey’s main opposition party CHP filed a motion to parliament stating that adjustments to the methodology used by the Turkish Statistical Institute (TUIK) when calculating inflation were unprecedented and damaged the credibility of the country’s inflation data. The value of the Turkish lira (TRY) against the dollar fell by around a third last year after Turkey’s economy overheated and the country was hit by a currency crisis. The currency crunch sent inflation soaring above 25% and in response the central bank hiked its policy rate to 24%. The inflation rate has since officially fallen to below 16% and, whatever observers think about the reliability of the figure, it has paved the way for the national lender to cut rates. It last week cut the key policy rate by 425bp to 19.75%, bringing in the biggest interest rate reduction in at least 17 years. There is, however, also
48 TURKEY Country Report August 2019 www.intellinews.com