Erdogan Says Turkey May Face 'Serious Problems' if Central Bank Not Fully Revised

Turkish president plans overhaul for the central bank in wake of dismissal of former Governor Murat Cetinkaya, who has been sacked without official explanation

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Turkey's President Recep Tayyip Erdogan speaks to reporters in Istanbul, July 8, 2019.
Turkey's President Recep Tayyip Erdogan speaks to reporters in Istanbul, July 8, 2019.Credit: Presidential Press Service via AP

President Tayyip Erdogan said Turkey could face serious problems if its central bank is not completely overhauled after the dismissal of governor Murat Cetinkaya, the Haberturk news website reported Wednesday.

A presidential decree on Saturday showed Cetinkaya, whose four-year term was due to run until 2020, had been replaced by his deputy Murat Uysal, reigniting concerns about political interference in monetary policy.

No official reason was given for the sacking, but government sources cited Erdogan's frustration that the bank had kept its benchmark interest rate at 24 percent since September to support the ailing lira, even as the economy slipped into recession.

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Erdogan told reporters on his airplane returning from a trip to Bosnia that Cetinkaya had made decisions for which a high price was paid and he had not inspired market confidence, Haberturk said.

"The central bank is the most important element in the economy's financial pillar," Erdogan said. "If we do not revise it completely, if we don't put it on solid foundations, we may face living with serious problems."

"Most importantly, he did not inspire confidence in markets. His communication with markets was not good," he added.

Erdogan, a frequent critic of high interest rates, has often called for lower rates to boost the economy, which shrank 2.6 percent in the first quarter, after a slide of 30 percent in the lira last year against a background of soaring inflation.

The lira, which weakened after Saturday's move, was unchanged at 5.73 against the dollar after Erdogan's latest comments. Analysts think the central bank could start easing monetary policy at a July 25 meeting.

Erdogan said that he emphasised stability and decisiveness in steps on financial issues, and that each time the bank's rate-setting monetary policy committee (MPC) met, there was always uncertainty about what would emerge.

He said Cetinkaya had cut the number of MPC meetings each year, with eight this year. Before the policy change, the meetings were held every month.

"They did not ask us about these things, they did them of their own accord," Erdogan said, adding that Cetinkaya had also made organizational changes to the bank, by setting up directorates.

Cetinkaya hiked the benchmark interest rate by a total of 11.25 percentage points last year to 24 percent now.

His sacking came ahead of the expected delivery to Turkey of Russian air defence systems, which may trigger U.S. sanctions and put the lira under renewed pressure.