Interest rates ‘too high to encourage investment’
Turkish President Tayyip Erdogan renewed his call for lower interest rates on Sunday, saying they were too high to encourage investment and entrepreneurship, an argument likely to unnerve investors already worried about central bank independence.
Long a champion of populist economics, Erdogan has repeatedly called for lower rates to spur growth, equating higher financing costs with treason.
Economists say Turkey’s central bank needs to hike rates to rein in inflation. Its refusal to do so has sparked worries about political interference in monetary policy, helping send the lira currency to a series of record lows this year.
“In Turkey, the interest rates are high. Our rates are not those in the West, where they are low,” Erdogan told a group of business and economic leaders at a labor market forum as part of the G20 meeting in Turkey’s coastal province of Antalya.
“First you have to reduce the cost of money. As long as the cost of money is on the rise, you can neither find young businessmen nor young businesswomen,” he said, as the central bank governor, Erdem Basci, and IMF chief Christine Lagarde looked on.
The AK Party founded by Erdogan recovered its single-party majority in a snap election on Nov. 1. Investors are now waiting to see whether it will pursue a populist economic tack, or whether it will pursue greater fiscal discipline and attempt structural reforms that economists say are overdue.
In a separate development, China welcomed backing from IMF experts that the yuan should be included in its reserve currencies, saying the move would strengthen the world’s financial system.
China asked last year for the yuan to be added to the elite basket of SDR currencies, but until recently it was considered too tightly controlled to qualify.
It now looks likely the yuan will be formally admitted to the IMF’s “special drawing rights” currency basket at the end of the month, which would mark a milestone in China’s efforts to become a global economic power.
Lagarde said the fund now deemed the yuan “meets the requirements to be a ‘freely usable’ currency” — a key hurdle to joining the yen, dollar, pound and euro as a leading unit in international trade.