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Erdogan Praises Central Bank's Rate Cuts, Promises More to Come

Cagan Koc

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Turkish President Recep Tayyip Erdogan said he expects further monetary easing by the central bank even though he’s been satisfied with the pace of its interest-rate cuts thus far.

“Interest rates retreated to reasonable levels with the central bank’s appropriate interventions,” Erdogan said in a speech to his ruling AK Party members on Saturday in the central Anatolian town of Kizilcahamam. “But I believe that they will fall further.”

Erdogan remains fixated on lower borrowing costs, which he believes would only curb inflation. Governor Murat Uysal recently signaled, however, that the central bank might look to moderate its pace of cuts after “front-loaded” monetary easing in July and September. On Uysal’s watch, the central bank has lowered rates by 750 basis points.

The remarks on Saturday are a departure for Erdogan, who’s long feuded with his central bankers and fired Uysal’s predecessor in July for not cutting rates fast enough.

It’s also a contrast to Erdogan’s initial impatience with Uysal, whose rate decrease in his first month on the job -- a record move -- was deemed “not enough.” Then, days before the policy meeting in September, the president suggested Turkey will lower borrowing costs to single digits soon.

With the benchmark rate currently at 16.5%, further easing was already likely to be on the agenda for Uysal this month.

After inflation dropped to single digits on Thursday, the country’s real rate stood at a whopping 724 basis points, among the highest in emerging markets. Economists are already suggesting that policy makers may deliver another rate cut of 150 to 200 basis points when they next meet on Oct. 24.

The government predicts that inflation will end this year at 12%, while the central bank’s current base-case scenario is for 13.9%. The monetary policy authority may revise its forecast when it presents the next inflation report on Oct. 31.

Erdogan also reiterated his unconventional theory about monetary policy that lower rates bring price growth down. “Some people are using this nonsense that inflation is the cause and interest rates are the outcome to trick us with a Western-style mindset,” he said.

The president’s distaste for high rates has been linked to Islamic proscriptions on usury. In his view, producers have to pass on their higher borrowing costs to customers, so they raise prices.

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

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

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