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International investors view the meeting of the Turkish central bank as a critical test of whether the bank can remain independent of President Recep Tayyip Erdogan, of his growing powers and of what some people blame on his agenda Islamist.
The Turkish currency has fallen sharply as worries mount on the fact that it will impose unorthodox economic policies on the bank.
Erdogan, who called on Islamic banks to build a quarter of the country's banking sector, strongly opposes interest rates and described them as "the mother and father of all ills" . The president rejects the economic orthodoxy according to which the rate increase reduces inflation.
Investors expect the Turkish Central Bank meeting that it will raise rates to curb galloping inflation, currently above 15 percent – among the highest in the developed world. "If the central bank does not find the opportunity to make upside, then the markets will take it very negatively," said Inan Demir economist at Nomura Securities. "If it can increase, the market will consider this as the first favorable action to market the new administration."
Investors have seen their book plummet about 30% since the beginning of the year. Adding to the concern is Erdogan 's willingness to badume radical executive powers after the presidential elections last month.
During his campaign, Erdogan held a meeting in the city of Ankara. is committed to taking greater control over the economy, including the independent central bank. The appointment of his son-in-law, Berat Albayrak, as Turkey's finance minister has further heightened the concerns of international investors.
In the past, Albayrak has expressed support for Erdogan's position on interest rates. The new government announced at the beginning of the month the dismissal of Mehmet Simsek and Naci Agbal, whom investors saw as powerful defenders of orthodox economic policies.
The uncertainty surrounding the results of Tuesday's central bank meeting feeds investors' fears. New measures to prevent capital from leaving the country.
"Investors start asking if capital controls will be imposed," said Demir. "If there is no monetary policy to counter the depreciation of the lira by the central bank, then investors will start to badume the worst case scenario, the capital control scenario."
"Such a fear," he continued. capital outflows out of the country, which would put capital flows ahead, so there is the risk of a self-fulfilling prophecy. "
In recent days, Albayrak has sought to quell investors' concerns by declaring his support to the central bank
"We are aiming at an efficient central bank. The central bank sees and builds tax life in a proper way. Turkey will never again be so attractive to foreign investors, "he said Sunday.
Albayrak, accompanied by internationally respected economic experts, met with his country counterparts Monday at the Finance Ministers' meeting from the G20 in Buenos Aires Erdogan also refrained from advocating visibly his opposition to interest rates, a move seen as helping investor sentiment.But badysts warn of actions, not words. will determine how financial markets will eventually react to Turkey
If the central bank makes rate increases, it could improve Albayrak's reputation among international investors, say some badysts.
"He can correct its own image in the future, "said Demir, with Turkish interest rates already among the highest in the developed world, more than 17 percent uvelle rise will probably cause problems.
"[Turkish] private banks are already in place" Not adding to their loans because they realize at these rates, the repayment will be very difficult, "said political badyst Atilla Yesilada of Global Source Partners. "This will hit economic growth."
Turkish consumers and businesses are already heavily indebted and economists predict a severe economic slowdown – if not a recession – by the end of
Analysts warn even if the bank was to raise interest rates Tuesday and Erdogan would abandon its unorthodox economic policies, investors would look to Ankara to do more to curb public spending and avoid a dramatic tumble.
"The problem now is discretionary spending on megaprojects, welfare projects that are just not sustainable, that's it must be corrected, "said Yesilada. [ad_2]
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