Ankara- The Central Bank of the Republic of Turkey (CBRT) announced leaving the upper band of the marginal funding rate unchanged on Thursday, a few hours after Turkey’s President Recep Tayyip Erdogan had reiterated being an ‘enemy’ to interest rates.
President Erdogan had declared on several occasions his opposition to interest rates, stating that earning via interest is “a tool of exploitation.”
“I am an enemy of interest earnings. I see it as a tool of exploitation,” Erdogan said on Oct. 20 during a ceremony at the presidential palace in Ankara to mark the financing for two major health projects.
The CBRT pinned interest rates at 8.25 percent, while leaving its benchmark one-week repo rate unchanged at 7.5.
In the last seven meetings, the upper band has been cut by a total of 250 basis points.
Erdoğan has long been a critic of interest rates, even suggesting that unrest in Turkey has been fostered by a shady “interest rate lobby” aiming to profit from political instability. He has repeatedly declared his aim to push interest rates to zero and has criticized former Central Bank governors Durmuş Yılmaz and Erdem Başçı for not lowering rates enough.
The state’s central budget gap stood at 12 billion liras in the first nine months of the year, Erdoğan said on Oct. 20, noting that the consumer price index had fallen to 8.8 percent.
In a statement, the CBRT pointed to the slowing economic growth in the third quarter, which was confirmed by the government as the 2016 growth expectation was revised from 4.5 percent to 3.2 percent on Oct. 4.
“Recently released data and indicators regarding the third-quarter display a deceleration in economic activity. Reduced tightness in monetary conditions and the recent macroprudential measures support the overall financial conditions,” read a statement on Thursday.
The body also said on Thursday: “The lagged effects of the terms of trade developments and the moderate course of consumer loans limit the widening in the current account balance driven by the decline in tourism revenues.
“Demand from the EU economies continues to contribute positively to exports. With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter.”
The slowdown in aggregate demand contributed to the gradual fall in core inflation, the bank said. “The Committee assesses that the implementation of the structural reforms would contribute to potential growth significantly.”
“Yet, the recent developments in exchange rates and other cost factors restrain the improvement in inflation outlook and thus necessitate the maintenance of a cautious monetary policy stance,” it added.
After the decision was announced, Turkey’s lira gained 0.5% to 3.0556 per dollar, from 3.0726. The main BIST 100 stock index extended its gains and was up 0.4% while the benchmark two-year government bond yield was steady at 8.88%.