Erdogan welcomes the new economic team’s moves, but says the view on tariffs remains the same

Newly appointed Treasury and Finance Minister Mehmet Imek will take swift action in coordination with the Central Bank, President Recep Tayyip Erdogan said Wednesday, as Turkey returns to interest rate hikes to fight inflation and renews policies based on monetary stimulus.

However, Erdogan stressed that it would be wrong to say that he has changed his stance on interest rates.

Since winning re-election last month, Erdogan has appointed imek, which is highly regarded by financial markets, as well as the new central bank chief, Hafize Gaye Erkan, a former top US-based bank executive, as the harbinger of a tougher policy shift. interest rate policy.

In his first comments on monetary policy after the appointments, Erdoğan said that he “accepted” the proposed changes, although he still did not agree with the views of the economic leaders.

“Some of our friends are saying, ‘Will the President make serious changes in the interest rate policy?’ should not allow the question. I remain in the same position,” he told reporters while returning from Azerbaijan.

“We agreed that (imek) together with the central bank should take the necessary steps quickly and diligently.”

Erdogan’s comments indicated that he had given the green light to the central bank’s interest rate hike.

Analysts at leading investment banks now expect the central bank to start raising interest rates at its monetary policy committee meeting on June 22.

The approach to tariffs remains the same

Saying that he is determined to reduce the inflation, which fell slightly below 40% in May, to single digits, Erdogan said that he is continuing the policy of “low inflation, low interest”.

A critic of high borrowing costs, Erdogan has spent the past two years championing a “new economic model” that prioritizes ultra-low interest rates.

The model aims to achieve price stability by reducing borrowing costs, increasing exports and turning chronic current account deficits into surpluses.

After Erdoğan appointed Erkan to the Ministry of Finance and former CEO of First Republic Bank and managing director of Goldman Sachs to the central bank, expectations of Ankara’s return to orthodox policies have increased.

The 56-year-old imek won the trust of the markets when he served as finance minister and deputy prime minister between 2009 and 2018. In his first speech after taking office, he said the country had no choice but to return to “rational ground” economically. policies.

imek promised to increase predictability and accelerate structural transformation. He said fiscal policies and structural reforms would support Turkey’s central bank to help lower inflation.

Erdogan said that he told the new central bank governor about his expectations.

When asked whether it was his idea to appoint Erka as the new head of the central bank, he said that the idea of ​​his appointment was proposed to him.

“We thought we would become a female administrator at the central bank for once and took this step. Of course, we told her our expectations,” he said.

“We hope that neither our treasury and finance minister nor our central bank will discourage us with these steps,” he added.

Princeton-educated Erkan is the first woman at the helm of Turkey’s central bank since Sahap Kavcolu, who led the easing initiative that saw the monetary institution cut its benchmark policy rate from 19% to 8.5% in 2021.

He was a managing director at investment banking firm Goldman Sachs and spent six months in 2021 as CEO at San Francisco-based First Republic Bank. The failed bank was taken over by JPMorgan Chase after US regulators seized it in May. .