Turkey Finance Minister defends independence of central bank

‘Central Bank's credibility is very important’

ANKARA - Turkish Finance Minister Mehmet Simsek defended Wednesday the central bank's policies despite criticism voiced by the prime minister over the timid easing of a key interest rate.
"The central bank's credibility is very important for Turkey," Simsek said.
"I believe the central bank did and will do the best," he added. "The central bank's independence is one of the biggest gains of the last decade."
Last week, the central bank trimmed its one week repurchase rate, used by commercial banks for short-term funding, from 10.0 percent to 9.5 percent in what it said was a "measured decrease".
The small rate cut drew the wrath of Prime Minister Recep Tayyip Erdogan, who on Tuesday accused the central bank of "kidding the nation".
"Interest rates are high and must be reduced. We are tasked with balancing the (economic) climate" Erdogan told members of his ruling party in the parliament.
"The interest rate must be lowered, so that real investments can increase," he added.
Central bank governor Erdem Basci has declined to comment on the premier's criticism.
The rate cut came after the bank aggressively raised key rates in January in a bid to halt a steep drop in Turkey's currency, the lira, which lost nearly a third of its value in two months.
Erdogan has been concerned not to lose one of his key achievements: the stellar economic growth that Turkey has posted since his Islamic-rooted Justice and Development Party (AKP) came to power 10 years ago.
Markets value an independent central bank as being a better guarantor against inflation, which erodes the value of investments in government bonds as well as the value of a currency, compared to governments which are often focused on growth.
Erdogan's ruling party scored a stunning victory in the March 30 local elections, which observers said was an indicator of Turkish electorate's credit to the government for its economic achievements.
While growth has slowed from nearly 9.0 percent in 2010 to 4 percent last year, the economy doesn't appear to have stalled from the interest rate hike.
The Turkish premier is tipped to run for presidency, which is currently a largely ceremonial post, in August.