ANKARA
The governor of the Central Bank of Turkey on Monday dismissed calls for an emergency meeting to cut interest rates.
On Friday, Prime Minister Recep Tayyip Erdogan called on the central bank to cut interest rates, saying they must be decreased to stimulate the economy now that the political turmoil that preceded the local elections on March 30 local elections has diminished.
Turkey's central bank Governor Erdem Basci said Monday that “the central bank's strategy is to increase interest rates suddenly to the maximum level as it necessitates, then if conditions improve, decrease the rate step by step.”
Basci, pointing out that the bank's Monetary Policy Committee takes the decisions, said that current monetary policy is tight and prudent steps can be taken, but timing and pace is very important.
"It is useful to make interest rate decreases step by step," Basci said. "Steps should be taken without eroding confidence in Turkey.”
Retail loans growth slowing in Turkey
Speaking at the Monetary Policies Conference, held by the Kayseri branch of the Chamber of Industry, Basci said that retail loan growth, which has been seen as one of main reasons behind Turkey’s US$65 billion current account deficit, continues to slow down due to a tight monetary policy stance, recent macro prudential measures and weak capital flows.
Basci explained that the impact of monetary tightening measures, such as the interest rate hike and limitation of monthly installments of credit cards, would be delayed since the new prices, considerably higher than the former ones, would come into force after stocks ran out.
However, the current account deficit will improve substantially in 2014 Basci said, stressing that exports and the slowdown in domestic demand would work in Turkey's favor regarding its deficit and growth as the higher prices are expected to suppress demand and thereby inflation.
On January 28, the Central Bank more than doubled its borrowing rate from 3.5 percent to 8 percent, and raised the lending rate from 7.75 percent to 12 percent while The Banking Regulation and Supervision Agency brought in new measures to curb the use of credit cards to pay for goods in monthly installments in the hope it would restrict the country´s growing inflation and current account deficit.
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