Reuters
Istanbul


Turkey needs a “more orthodox” and predictable monetary policy, the country’s newly appointed economy czar said yesterday, throwing his weight behind a central bank drive to simplify its intricate system of multiple rates.
In some of his first public comments since being appointed deputy prime minister in charge of the economy late last month, Mehmet Simsek sought to reassure investors he was committed to fiscal discipline and central bank independence.
He also said a worst case of “zero relations” with Russia would cost Turkey about $9bn, underscoring the economic fallout of tensions with Moscow after Turkey shot down a Russian jet last month.
Speaking to broadcaster NTV, Simsek said that predictability in monetary and fiscal policy should increase, adding that he planned to announce a roadmap for reforms this week.
“We should present a more orthodox monetary policy,” he said.
Central Bank governor Erdem Basci has said he will look to simplify Turkey’s system of multiple interest rates once the US Federal Reserve begins raising rates.
That could come as early as this month; the Fed is widely expected to raise rates for the first time in almost a decade at its December 16 meeting. Basci has also hinted that Turkey may raise rates once the Fed moves.
Investors have longed complained about the complexity of the corridor system, which comprises three different rates, including the benchmark repo rate.
More welcome still would be a rate increase, to allay persistent investor concern about central bank independence. The bank has kept the repo rate at 7.5% since February, even though economists think it needs to rise to put a floor under the tumbling lira.
But President Tayyip Erdogan has repeatedly railed against high rates, breeding concern about political meddling in policy and sending the lira to a series of record lows.
Simsek has been at pains so far to reassure investors he is committed to fiscal discipline and central bank independence. Days after his appointment, he used Twitter to quell worries the government would try to influence the central bank.
While he did not give details yesterday about the expected roadmap of reforms, he said he did not foresee changes in the “main parameters” of the budget, although new developments and election promises would be taken into consideration.
Overall, economic growth is forecast to reach 3.0% to 3.5% this year and will probably be 4% or a little higher in 2016, he said.