(Bloomberg) — Turkey’s central bank has the independence to take measures needed to slow inflation, according to the country’s finance chief, who’s been leading a policy overhaul since national elections in May.
“The central bank has a free hand, so to speak,” Treasury and Finance Minister Mehmet Simsek told the Kanal 7 TV channel on Sunday. “They will do whatever is necessary to reduce inflation.”
Senior central bank officials, appointed after President Recep Tayyip Erdogan’s re-election with the goal of pursuing a return to mainstream policymaking, have recently drawn criticism for appearing to stray away from orthodoxy by focusing on alternative tightening steps.
For bankers and economists, the approach is becoming reminiscent of their predecessors, when policymakers – to comply with Erdogan’s wishes – implemented a slew of regulations instead of raising rates.
Simsek said the president supports the new program, which includes “normalizing” monetary policy. The previous policy wasn’t “functional,” he said.
Turkey’s central bank raised its benchmark rate to 45% from 8.5% over eight policy meetings in an effort to tame soaring inflation, and has promised to tighten further in case of worsening outlook for prices.
The central bank’s Monetary Policy Committee will hold its rate-setting meeting on March 21 amid rising calls for it to once again lift the benchmark.
According to analysts at Goldman Sachs Group, a rate increase would signal that the central bank can act with its own authority and avoid any interpretation that it’s tilting back toward unorthodoxy.
Turkey’s monthly inflation print, the main gauge for the policymakers, was worse than expected last month but that could be “compensated with additional tightening measures,” according to Simsek, although he highlighted throughout the interview that the central bank sets monetary policy.
Read more: Turkey’s Inflation Spirals Closer to 70% in Worry for Peak Rates
Until his re-election in May Erdogan endorsed ultra-low borrowing costs and prioritized economic growth through cheap credit.
That sparked an inflation crisis and led to the appointment of more market-friendly officials, including Simsek, who’s been trying to restore investor confidence and bring inflation down to single digits by putting the country on a mainstream track.
“The essence of the program is disinflation, to bring inflation to single digits,” Simsek said.
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