Erdogan Causes Shock Waves Among Investors
Judging by the performance of the currency market, President Erdogan’s London tour to convince inErdogan Causes Shock Waves Among Investorsvestors to return to Turkish markets is not going too well.
By 11:30 am TST, Istanbul stocks were down by 0.9%, followed by TL dropping another half percentage point vs. dollar and Euro, and the benchmark two-year government yield soaring to 16.42%, up by 32 pips. What did Erdogan say that frightened the investors? Nothing new really, he reiterated his run-of-the mill daily grist for Turkish audience to global funds, which began to suspect he might be serious about what he says.
CBRT will heed the president
In an interview with Bloomberg Television broadcast on Tuesday, Erdogan said the central bank was independent but it cannot ignore signals from the head of the executive once the switch to a presidential system is complete.
“I will take the responsibility as the indisputable head of the executive in respect of the steps to be taken and decisions on these issues,” he said in the interview, made during a visit to Britain.
Turkey has called snap presidential and parliamentary elections for June 24 and polls show Erdogan as the strongest candidate to win the presidential vote. Turks narrowly backed a switch to an executive presidency in a referendum last year. That change is due to go into effect after June polls.
Takes personal responsibility for monetary policy
Erdogan said that citizens would ultimately hold the president responsible for any problems generated by monetary policy.
“They will hold the president accountable. Since they will ask the president about it, we have to give off the image of a president who is effective in monetary policies,” he said.
“This may make some uncomfortable. But we have to do it. Because it’s those who rule the state who are accountable to the citizens,” he added.
Erdogan is a fierce critic of high interest rates, seeking lower borrowing costs to boost the economy. On Friday called them the “mother and father of all evil”.
In the interview, he reiterated his view that high interest rates cause inflation.
“The interest rate is the cause and inflation is the result. The lower the interest rate is, the lower inflation will be,” he said.
Bashes US for Hakan Atilla trial
Erdogan also said that Halkbank (HALKB.IS) executive Mehmet Hakan Atilla, who was found guilty by a U.S. court of helping Iran evade U.S. sanctions, was innocent and Turkey wanted his acquittal.
“If Hakan Atilla is going to be declared a criminal, that would be almost equivalent to declaring the Turkish Republic a criminal,” he said.
CBRT will lower rates
He added on Bloomberg TV in London on Monday that after the vote transforms Turkey into a full presidential system, he expects the central bank will have to heed his calls for lower interest rates.
The central bank’s key rate is now 13.5 percent, compared with 10.9 percent consumer-price inflation.
“When the people fall into difficulties because of monetary policies, who are they going to hold accountable?” “They’ll hold the president accountable. Since they’ll ask the president about it, we have to give off the image of a president who’s influential on monetary policies.”
That “may make some uncomfortable,” he said. “But we have to do it. Because it’s those who rule the state who are accountable to the citizens.”
Halkbank not involved in Iran sanctions violations
Regarding a U.S. court ruling against a banker from Turkiye Halk Bankasi AS for trying to evade U.S. sanctions against Iran:
“Right now a great injustice is being done against Halkbank…
Such an injustice can’t be… I can’t know what result is going to come from this… I hope it doesn’t yield a result that will completely destroy Turkish-U.S. relations.”
“Hakan Atilla is definitely innocent. So we want his acquittal… If Hakan Atilla is going to be declared a criminal, that would be almost equivalent to declaring the Turkish Republic a criminal.”
PA Intelligence commentary: Shock!
Erdogan’s comments have probably created a shock wave among fund managers who had these views through press accounts, but might have considered them fodder for domestic consumption. To finally grasp that Erdogan intends to radically overhaul the current monetary framework and possibly defy US fines on Halkbank, if former executive Mr. Hakan Atilla is to be sentenced to prison terms, could change investment plans for some funds which were still enthusiastic about Turkish financial markets in anticipation of a more orthodox economic policy and better relations with key ally US after the 24 June elections.