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Albayrak Sees ‘Significant’ Turkish Easing After Record Rate Cut

Albayrak Sees `Significant' Turkish Easing After Record Rate Cut

(Bloomberg) -- Turkish Treasury and Finance Minister Berat Albayrak said the country’s borrowing costs are headed lower but stressed that the scale of monetary easing remains up to the central bank.

“Turkey will make a significant reduction in interest rates, but we’re not the ones to determine the margin of that,” Albayrak told reporters Tuesday in Ankara. “The central bank is taking steps, looking at the data.”

Under a new governor recently installed by President Recep Tayyip Erdogan, the central bank pulled off its first rate cut in three years and the biggest since a shift to inflation targeting in 2002.

The pivot toward monetary easing by Governor Murat Uysal raised questions about how he’ll reconcile the central bank’s priorities with Erdogan’s drive for economic growth and his unorthodox theory that high interest rates cause rather than curb inflation. He fired Murat Cetinkaya as governor this month for failing to act.

Albayrak said that as a representative of the executive branch, he views “the decline in interest rates positively, due to the cuts in the costs of the real sector.” Inflation will end the year below the government’s target of 15.9%, thanks in part to its “budget discipline,” he said.

Inflation Relief

Powerful base effects will likely continue to choke off inflation, which is already down almost 5 percentage points so far this year. The central bank, which is due to release its updated outlook for price growth on Wednesday, has said that recent forecast revisions indicate that inflation will probably end the year slightly below the 14.6% projected in its April report.

Easing by the central bank will probably be followed by a decline in loan rates, led especially by state-run lenders, according to Albayrak. Turkey may also be entering a “more benign environment” in the second half of the year, he said.

Economic growth will be positive this year and probably close to the government’s forecast for a gain of 2.3% in 2019, Albayrak said. Turkey is likely to run a budget shortfall below 3% of gross domestic product, especially as revenue recovers in the second half, he said. That would still be well above the deficit target of 1.8% for this year.

The government “has no funding issue” and believes it can easily borrow at home and abroad, Albayrak said. He described the level of indebtedness and financial conditions of Turkish households and companies as being in a “good shape” compared to Turkey’s peers.

“The immune system of the economy is stronger compared to last year,” Albayrak said. “The worst is behind for Turkey.”

--With assistance from Ugur Yilmaz.

To contact the reporter on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, ;Onur Ant at oant@bloomberg.net, Paul Abelsky, Constantine Courcoulas

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