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Erdogan Says Record Rate Cut ‘Not Enough,’ Urges Gradual Easing

Erdogan Says Record Rate Cut ‘Not Enough,’ Urges Gradual Easing

(Bloomberg) -- President Recep Tayyip Erdogan called on the central bank to press ahead with monetary easing, speaking a day after it delivered Turkey’s biggest interest-rate cut in at least 17 years without roiling markets.

“This was what needed to be done,” Erdogan said Friday in Ankara. “Even this cut is not enough. Cuts may continue gradually until year-end.”

Erdogan Says Record Rate Cut ‘Not Enough,’ Urges Gradual Easing

Less than three weeks after getting the job, Governor Murat Uysal slashed the benchmark borrowing rate by 425 basis points to 19.75% on Thursday, exceeding almost all forecasts. The first cut in three years was also the biggest since a shift to inflation targeting in 2002, in the clearest sign yet that Erdogan is moving to take more control of monetary-policy making.

The sharp pivot toward monetary easing suggests the new governor is trying to 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.

Erdogan promised to take more direct control over rate decisions and the economy in an interview last year. In his view, producers have to pass on their higher borrowing costs to customers, so they raise prices.

“High rates are the biggest obstacle for Turkey’s economy,” Erdogan said on Friday.

The Turkish leader reiterated that he believes inflation will soon slow to single digits, with rate cuts allowing the economy to reach its potential growth.

‘Turning Point’

“I consider the central bank’s rate decision a vital turning point, we will see inflation going down rapidly,” he said. “I repeatedly voiced my discomfort with high interest rates for many years but central bank governors did not listen to me back then.”

Despite the bigger-than-forecast easing, the decision didn’t unleash a sell-off in the market, a point Erdogan was keen to emphasize on Friday. Instead, a rally in Turkey’s local bond and swap markets followed the rate reduction.

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“What happened after” the rate cut, Erdogan asked on Friday. “Did Turkey go bankrupt? Everything collapsed? Markets responded normally.”

The lira traded 0.4% stronger at 5.6732 per dollar as of 12:41 p.m. in Istanbul after unwinding some of its gains after the central bank’s meeting.

“Look at Japan, Israel, the U.S.,” Erdogan said. “You do not see these rates. We will lower rates methodically.”

To contact the reporter on this story: Ugur Yilmaz in Istanbul at uyilmaz@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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