BCN-16, 17 Turkey’s new finance supremo seeks to win over sceptical markets
Turkey’s new finance supremo seeks to win over sceptical markets
ISTANBUL, July 13, 2018 (BSS/AFP) – Turkey’s new finance minister, the son-
in-law of President Recep Tayyip Erdogan, on Thursday sought to reassure
sceptical financial markets after his surprise appointment prompted a new
battering for the lira and Turkish assets.
Erdogan on Monday named Berat Albayrak, 40, the husband of his elder
daughter Esra, as treasury and finance minister, in a cabinet reshuffle for
his second term under a new system that hands the head of state expanded
His rapid promotion from the energy ministry took many market participants
by surprise, while pragmatic, market-friendly faces like outgoing deputy
premier Mehmet Simsek and finance minister Naci Agbal were conspicuous by
But in his first detailed comments in the job, Albayrak said that the
independence of the central bank should not be called into question and vowed
to bring inflation under 10 percent.
The lira has lost over six percent in value against the dollar since his
appointment and fell sharply late on Wednesday to new record lows
precariously close to 5 to the dollar.
– ‘Like never before’ –
A key concern of markets has been the independence of the central bank,
with Erdogan repeatedly urging rate cuts despite high inflation and now able
to directly appoint its leadership under the new presidential system.
“The independence of the central bank and its decision-making mechanisms
cannot be a subject of speculation,” Albayrak was quoted as saying by the
state-run Anadolu news agency.
He said that the central bank’s capacities should be widened in the pursuit
of price stability. “One of the main aims of our policies in the new period
is a central bank that is effective like never before,” he said.
Markets are also concerned that Erdogan underestimates the dangers posed by
inflation, which surged to over 15 percent in June for the first time in
almost one-and-a-half decades.
The president was quoted by Turkish newspapers including the Hurriyet
newspaper on Wednesday as saying “we will see a decrease in interest rates,”
and warning high interest rates could hurt employment.
TURKEY-FOREX-ECONOMY 2 LAST ISTANBUL
– ‘Moment of truth’ –
But Albayrak said that the “fundamental priority” in the upcoming period
would be fighting inflation.
“We will take steps to first bring inflation in the shortest time down to
single digits and then to our target,” he added.
The recent inflation figures have made a mockery of the central bank’s
inflation target of 5 percent.
Albayrak’s comments helped the lira make up some of its losses from
Wednesday, trading at 4.85 to the dollar, a gain in value of 1.3 percent on
Analysts at Commerzbank said the “moment of truth” would strike for the
lira on July 24 when the central bank holds its next meeting, warning capital
controls “may prove unavoidable” if it fails to hike rates sufficiently.
The bourse has also been hit, with shares in Garanti Bank, one of Turkey’s
top private lenders, shedding some 24 percent in value over the last five
Turkey enjoyed strong growth in 2017 but the widening of its current
account deficit — which grew to $57.6 billion in May — has raised concerns
the economy is overheating.
Meanwhile, several of Turkey’s biggest industrial companies have been
forced to negotiate with creditors to restructure debt after the lira
depreciation increased their financial burdens.
– ‘Erdogan’s Achilles’ heel’ –
Fadi Hakura, associate fellow at Chatham House, said it was debatable if
Albayrak has “the competence to placate jittery financial markets and foreign
He added defaults by major Turkish companies “would reverberate across the
Turkish economy… and potentially lead to a crisis within the Turkish
Erdogan built much of his popularity on his stewardship of the economy
which helped lift Turkey from the traumas of hyperinflation and the 2001
But even after his outright win in last month’s presidential elections,
economists warn that Erdogan needs to tackle growing imbalances in the
“The deteriorating state of the economy is his Achilles’ heel and the
biggest threat to his currently unrivalled leadership,” said Hakura.