Turkish Deputy Prime Minister Mehmet Simsek poses during an interview with Reuters in Ankara on Wednesday. The central bank had been “very clear” in its statement explaining its surprise decision to leave interest rates steady this week, he said.

Reuters
Ankara

Deputy Turkish Prime Minister Mehmet Simsek said he expected faster economic growth this year than official forecasts, and an even stronger expansion next year, and he played down tensions with Moscow over Ankara’s downing of a Russian jet.
Simsek also told Reuters in an interview that the central bank had been “very clear” in its statement explaining its surprise decision to leave interest rates steady this week, in comments that may do little to quell investors’ concerns about the bank’s independence.
The “positive surprise” of third-quarter GDP growth of 4% pointed to full-year growth of 3.5 to 4% and more than 4% growth in 2016, said Simsek, who is responsible for the performance of the economy. In October, the government cut its growth forecasts to 3 from 4% in 2015 and to 4 from 5% in 2016.
“This growth is a rather good outcome given the serious political instability due to elections, troubles in the Middle East and surrounding countries and the narrowing demand due to the collapse in commodity prices,” he said late on Wednesday.
Commenting on those problems, Simsek said souring relations with Moscow after Turkey shot down a Russian warplane last month had not had a serious impact on trade and was unlikely to do so.
“We do not anticipate a lasting, significant impact on foreign trade. If there is one, it will be limited,” he said. “We will be able to find alternative markets for our products.”
Simsek, a former finance minister, took up his new post last month after an election that handed one-party rule back to the AK Party, which oversaw an economy that has grown around 5% annually on average since it first came to power in 2002.
The deputy prime minister also said he expected the current account deficit, resource-poor Turkey’s biggest economic weakness, to narrow to about 4.5% of GDP this year and then to 4% next year.
“We think the narrowing in the current account deficit will continue next year despite developments in Russia and the region,” he said.
Simsek said the central bank, which stunned the markets on Tuesday by not hiking interest rates as widely expected, was acting in line with its “road map” towards a simpler policy framework aimed at narrowing its corridor of interest rates.
“(The central bank) has taken many steps required by this road map and said that the next step would be a process of narrowing the corridor. It linked this to market volatility,” he said, avoiding further comment.
Analysts have been urging an interest rate hike to rein in inflation and boost the lira currency, but the bank has faced political pressure to keep monetary policy loose. President Tayyip Erdogan has called for rate cuts and even equated high interest rates with treason.
The lira, which weakened to 2.96 to the dollar after Tuesday’s rate decision, has since recovered and stood at 2.9232 yesterday. The main share index was up 0.1% and the 10-year benchmark bond yield was steady at 10.78%.
“In the short term, naturally, inflationary pressures will continue to be strong,” Simsek said.
“The decline in global commodity prices will be somewhat supportive in the period ahead,” he added, suggesting the inflationary pressure the central bank faces may ease.
“To lower (inflation) we have to raise productivity, securing this with structural reforms. We must strengthen monetary policy’s hand by keeping fiscal policy tight,” he said.
He added that the 2016 budget would give the signal that fiscal discipline will be maintained and forecast faster growth next year as political uncertainty wanes and European economies recover.
“The reform agenda, serious real increases in wages, domestic investment and consumption will boost demand,” he said.
He added that a delay in Turkey’s implementation of the Basel III set of global banking regulations, expected to take place in March, was not currently on the agenda.