Turkey’s central bank headquarters is seen in Ankara. Analysts say the central bank, which holds a rate-setting meeting today, desperately needs to hike rates to shore up the currency.

Reuters
Istanbul


Turkey’s interest rates need to fall, its economy minister said yesterday, reviving government attempts to influence the central bank as monetary policymakers geared up for a meeting and uneasy investors sent the currency to a record low.
Turkey’s lira has taken a drubbing since coalition talks between the governing AK Party and the main opposition broke down last week, raising the likelihood of fresh election against a backdrop of mounting violence in the country’s southeast between government forces and Kurdish PKK militants.
Analysts say the central bank, which holds a rate-setting meeting today, desperately needs to hike rates to shore up the currency.
But Economy Minister Nihat Zeybekci said that, while he did not expect a cut this week, Turkey’s benchmark borrowing costs should be lowered.
“Looking at Turkey’s total debt structure, I don’t think current exchange rates are a cause for concern. We shouldn’t intervene in the market, it will find its own balance,” he told reporters after a meeting in Istanbul.
“This is crunch time for Turkey’s central bank. Leaving interest rates unchanged in the current environment would smack of recklessness - even for a central bank whose independence has long been questioned,” said Nicholas Spiro of Spiro Sovereign Strategy.
The bank and is widely expected to keep its one-week repo rate at 7.5% today, bowing to pressure from President Tayyip Erdogan who has repeatedly called for lower rates.
Erdogan is also battling political headwinds, with the AK Party he founded needing to find a junior coalition partner after losing its overall majority in elections in June.
Prime Minister Ahmet Davutoglu was meeting with the head of the nationalist MHP yesterday, although one senior AKP official said there was little chance of reaching a coalition agreement.
Underscoring the lacklustre state of Turkey’s economy, unemployment rose year on year to 9.3% between April and June, data showed earlier on yesterday.
After years of rapid expansion, Turkey’s economy has cooled considerably as heightened political unease has blunted investment. Economists expect gross domestic product to grow around 3% this year and next, well below government forecasts.
Monthly unemployment averaged 9.3% between April and June, Monday’s non-adjusted data from the Turkish Statistics Institute showed.
That was up from 8.8% in the same period a year ago but down from 9.6% during March-May.
“Overall slow economic activity” was partially to blame, Ozgur Altug, chief economist at BGC Partners said in a note to clients, adding that some improvement was expected in June, due to tourism and a new harvest.
The non-farm unemployment rate, also measured on a three-month average, stood at 11.4%, up from 10.7% a year earlier and down from 11.6% in March-May.