Turkish President Recep Tayyip Erdogan said yesterday he had dismissed the central bank governor because he failed to follow instructions on interest rates and the bank had not properly fulfilled its role.
Erdogan sacked Murat Cetinkaya on Saturday, a year before the governor’s four-year term was due to end, replacing him with his deputy Murat Uysal.
“We believed that the person who was not conforming to instructions given on this subject of monetary policy, this mother of all evil called interest rates, needed to be changed,” Erdogan said in a speech in Ankara.
Cetinkaya hiked interest rates by 625 basis points in September to stem a currency crisis and kept them at 24% this year, preventing further losses in Turkey’s lira but helping push the economy into recession.
“You will soon see how our interest rate policy will be formed, because interest rates are the mother of inflation,” Erdogan said, adding that the central bank would provide more support to the government’s economic programme.
Erdogan, a frequent critic of high interest rates, has often called for lower rates to boost the economy, which shrank 2.6% in the first quarter, after a slide of 30% in the lira last year against a background of soaring inflation.
The lira, which weakened after Saturday’s move, was little changed at 5.71 against the dollar after Erdogan’s latest comments.
A Reuters poll found that economists now expect the Central Bank to cut rates at its next monetary policy meeting on July 25 by 200 basis points, a deeper cut than they had forecast before Erdogan’s surprise sacking of Cetinkaya.
Earlier yesterday, the Haberturk news website reported that Erdogan said Turkey could face serious problems if its central bank is not completely overhauled.
Erdogan also told reporters on his plane returning from a trip to Bosnia that Cetinkaya had made decisions for which a high price was paid and he had not inspired market confidence, Haberturk said.
“The central bank is the most important element in the economy’s financial pillar,” Erdogan said. “If we do not revise it completely, if we don’t put it on solid foundations, we may face living with serious problems.”
“Most importantly, he did not inspire confidence in markets. His communication with markets was not good,” he added.
Erdogan said that he emphasised stability and decisiveness in steps on financial issues, according to Haberturk, and that each time the bank’s rate-setting monetary policy committee (MPC) met there was always uncertainty about what would emerge.
He said Cetinkaya had cut the number of MPC meetings each year, with eight this year.
Before the policy change, the meetings were held every month.
“They did not ask us about these things, they did them of their own accord,” Erdogan said, adding that Cetinkaya had also made organisational changes to the bank, by setting up directorates.