{"id":46742,"date":"2011-11-16T10:13:37","date_gmt":"2011-11-16T08:13:37","guid":{"rendered":"http:\/\/www.turkishnews.com\/en\/content\/?p=46742"},"modified":"2016-12-28T16:07:46","modified_gmt":"2016-12-28T13:07:46","slug":"querying-erdogan-zero-rates-plan-creates-new-turkey-enemies-list","status":"publish","type":"post","link":"https:\/\/www.turkishnews.com\/en\/content\/2011\/11\/16\/querying-erdogan-zero-rates-plan-creates-new-turkey-enemies-list\/","title":{"rendered":"Querying Erdogan Zero Rates Plan Creates New Turkey Enemies List"},"content":{"rendered":"

By Benjamin Harvey<\/cite><\/p>\n

Nov. 16 (Bloomberg) — As Prime Minister Recep Tayyip Erdogan pursues his vision of an economy with real interest rates at zero, critics of Turkey\u2019s monetary policies are increasingly being portrayed as enemies.<\/p>\n

Trade Minister Zafer Caglayan says analysts who find fault with the initiative belong to an \u201cinterest-rate lobby\u201d that wants to force Turkey to raise rates to help create higher returns. Erdogan says interest rates should be close to zero after inflation. He said during a speech in May to the Islamic business association Tuskon in Istanbul that Turks should earn their money \u201cthrough work, not interest.\u201d<\/p>\n

The skeptics are seeking to \u201csuck Turkey\u2019s blood,\u201d stop its growth and keep the country indebted to foreigners, Caglayan was quoted by state-run Anatolia news agency as saying in July. In a written response to questions on Nov. 3, Caglayan said the government\u2019s view hasn\u2019t changed. He declined further comment.<\/p>\n

\u201cThis is very typical Turkish politics,\u201d Mert Yildiz, an emerging markets economist at Renaissance Capital, said in an interview in Istanbul. \u201cYou find an enemy that doesn\u2019t exist, but then that enemy can become real.\u201d<\/p>\n

Muharrem Karsli, chairman of TC Ziraat Bankasi AS, the country\u2019s largest state-run bank, said Sept. 22 the lobby used its influence to keep Turkey\u2019s credit ratings low, forcing the nation to pay higher yields to holders of its debt.<\/p>\n

Sabah newspaper, owned by Calik Holding, whose Chief Executive Officer Berat Albayrak is the prime minister\u2019s son-in- law, has led the charge in the media, including a Sept. 27 piece that says Bloomberg News quotes analysts who question the government\u2019s policies and publishes articles that mislead investors.<\/p>\n

Rate Cut<\/p>\n

Central bank governor Erdem Basci surprised investors in August by cutting the benchmark lending rate by 50 basis points to a record low of 5.75 percent. Analysts at Edinburgh-based Royal Bank of Scotland Group Plc and Societe Generale SA in Paris said the reduction, the third since December, risked stoking inflation and causing the current account deficit to widen from a record 10 percent of economic output.<\/p>\n

Basci may be acting under government influence, Yavuz Canevi, a former central bank governor and now chairman of BNP Paribas Turkish unit Turk Ekonomi Bankasi AS, said in an interview in Istanbul in August. Basci, 45, was deputy governor until Erdogan appointed him to head the central bank in April. He\u2019s a school friend and former adviser to Deputy Prime Minister Ali Babacan.<\/p>\n

Growth Question<\/p>\n

Fitch Ratings said Sept. 30 the key question before an upgrade of Turkish debt was whether the country could achieve \u201csustainable growth without major economic imbalances such as high inflation.\u201d Analysts at New York-based Goldman Sachs Group Inc. said Oct. 20 that either the currency or the interest rate \u201cwill have to give.\u201d<\/p>\n

Erdogan, 57, told parliament in July that the central bank would \u201ccontinue to decide on its monetary policy in an independent manner.\u201d In a response to questions about the interest lobby, Basci said Oct. 10 that the relationship between the bank\u2019s interest rate and the value of the currency \u201cisn\u2019t something we have to learn from foreign analysts.\u201d<\/p>\n

The rate cut was justified in August because the European debt crisis and slowing regional growth should cause inflation to decelerate next year, Basci said.<\/p>\n

Inflation was 7.7 percent in October, exceeding all eight estimates in a Bloomberg survey, up from 6.2 percent in September and a four-decade low of 4 percent in March. The central bank said Nov. 4 that inflation would end the year at about 8.3 percent, exceeding its 5.5 percent target.<\/p>\n

Reserve Rules<\/p>\n

Rather than raise the benchmark rate, Basci has sought to control inflation by increasing bank reserve requirements to as much as 16 percent for the shortest-term deposits to limit lending and consumer demand.<\/p>\n

Basci also reached for alternatives to defend the lira when it tumbled to a record low against the dollar in August and the central bank spent about 10 percent of its $84.4 billion of foreign-exchange reserves in three months to buy the currency. He announced plans last month for dual lending rates to banks ranging from 5.75 percent to 12.5 percent, saying he may switch between them on a daily basis. The policy rate remains at 5.75 percent, he said.<\/p>\n

Basci said Oct. 26 his policies give him the flexibility that \u201cno other bank in the world\u201d has to strengthen the currency while retaining the option of cheaper money should Europe\u2019s debt markets worsen.<\/p>\n

The dual-rates initiative represents a \u201cdistinct shift\u201d by Basci that will lead to \u201cmuch higher interest rates\u201d in Turkey, Amer Bisat, a money manager at hedge fund Traxis Partners LP and a former senior economist at the International Monetary Fund, said in a Nov. 7 phone interview from New York.<\/p>\n

\u2018Mixed Messages\u2019<\/p>\n

The policy sends \u201cmixed messages,\u201d according to analyst Michael Harris and economist Turker Hamzaoglu at Bank of America Merrill Lynch in London. It has \u201cconfused\u201d investors, according to Simon Quijano-Evans in London, head of emerging markets at ING Groep NV, and introduced \u201csignificant uncertainty and volatility,\u201d said JPMorgan Chase & Co. analysts including David Aserkoff in London.<\/p>\n

JPMorgan and Morgan Stanley, both based in New York, cited Basci\u2019s policy as a reason for downgrading their ratings of Turkish equities and banks over the past month.<\/p>\n

\u201cWe believe the central bank should have already raised rates,\u201d said Melissa Ball, an economist at Lombard Street Research in London, adding that there isn\u2019t an interest-rate lobby. \u201cWe are independent financial analysts trying to see the likely future of the Turkish economy.\u201d<\/p>\n

Argentina Conflict<\/p>\n

Turkey isn\u2019t the only country where economists are coming under fire for criticizing government policy. In Argentina, South America\u2019s second-biggest economy, the government began fining economists as much as 500,000 pesos ($120,000) this year for saying consumer prices are climbing at more than twice the official annual rate of 9.9 percent. The country\u2019s interior minister said economic consultants stand to profit by reporting annual inflation they estimate to be 24 percent, the highest in the world among major economies after Venezuela.<\/p>\n

While some analysts are critical of central bank policies in Turkey, the country\u2019s credit-default swaps trade at 259.5 basis points, less expensive than 12 of the world\u2019s 52 investment grade-rated countries. Turkey\u2019s foreign-currency debt is ranked two levels below investment grade by Standard & Poor\u2019s and Moody\u2019s Investors Service.<\/p>\n

Turkish bond yields have gained 340 basis points this year to 10.51 percent, including a 90 basis-point increase since the adjustable rates policy was announced, according to an index of securities published by Turk Ekonomi Bankasi. The rate is the highest among emerging markets globally, data compiled by Bloomberg show. The lira has declined 14 percent against the dollar this year, the biggest slump in emerging markets after the South African rand.<\/p>\n

SocGen to JPMorgan<\/p>\n

The central bank will eventually raise rates to slow Turkey\u2019s economy and protect the currency, Benoit Anne, chief emerging markets strategist at Societe Generale, said in an e- mail. Delaying a switch to an interest-based defense risks a \u201crapid and painful correction,\u201d he said.<\/p>\n

JPMorgan economist Yarkin Cebeci and Morgan Stanley economist Tevfik Aksoy, who have supported Turkey\u2019s rates policy even as their banks downgraded Turkish stocks, declined to provide comment on the government\u2019s claims of an alleged interest-rate lobby.<\/p>\n

To accuse analysts of pushing Turkey to raise rates against the country\u2019s interests is \u201ca pretty ludicrous suggestion,\u201d said Tim Ash, chief economist for emerging markets at Royal Bank of Scotland in London. The allegations are \u201cprobably a case of domestic party politics,\u201d he said. \u201cI think Turks and Turkish policy makers have valued people giving honest opinions, and I\u2019d hope this is still the case.\u201d<\/p>\n

–With assistance from Bill Faries in Buenos Aries, Selcuk Gokoluk in Istanbul, and Steve Bryant and Ali Berat Meric in Ankara. Editors: Mark Bentley, Gavin Serkin<\/p>\n

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net<\/p>\n

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net<\/p>\n","protected":false},"excerpt":{"rendered":"

By Benjamin Harvey Nov. 16 (Bloomberg) — As Prime Minister Recep Tayyip Erdogan pursues his vision of an economy with real interest rates at zero, critics of Turkey\u2019s monetary policies are increasingly being portrayed as enemies. Trade Minister Zafer Caglayan says analysts who find fault with the initiative belong to an \u201cinterest-rate lobby\u201d that wants […]<\/p>\n","protected":false},"author":83,"featured_media":68792,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[846],"tags":[1844,3348],"class_list":["post-46742","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-turkish-economy","tag-zafer-caglayan"],"_links":{"self":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/46742","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/users\/83"}],"replies":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/comments?post=46742"}],"version-history":[{"count":0,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/46742\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media\/68792"}],"wp:attachment":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media?parent=46742"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/categories?post=46742"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/tags?post=46742"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}