Fitch warns Turkey against too much emphasis on growth

If the new group in charge of economic policy that is expected to replace the current team after the upcoming general election adopts growth-based policies, Turkey may re-encounter risks seen in the past, global rating agency Fitch has said, in a reference to recent debates between ruling party deputies and the central bank over its interest rate policy that have recently pushed the Turkish lira to record lows against the US dollar “The issue is to what exten

If the new group in charge of economic policy that is expected to replace the current team after the upcoming general election adopts growth-based policies, Turkey may re-encounter risks seen in the past, global rating agency Fitch has said, in a reference to recent debates between ruling party deputies and the central bank over its interest rate policy that have recently pushed the Turkish lira to record lows against the US dollar

andldquoThe issue is to what extent their replacements are perhaps more pro-growth than the current team has been,andrdquo Paul Rawkins, a senior director in Fitchand#39s sovereign group, said.

Speaking on a conference call following a ratings review on Friday, Rawkins said: andldquoThe risk there is a more pro-growth team, more pressure on the central bank to lower the interest rates and perhaps a return to the imbalances that weand#39ve seen in the past, driven by this ambition that Turkey should grow at 5 percent when in fact at this point probably around 4 is more likely.

The lira recently dipped to record lows on multiple occasions amid intense debates between President Recep Tayyip ErdoIan and his supporters, who criticize the central bank for its interest rates policy, and those who defend the independence of the bank and whom ErdoIan labeled traitors for championing higher rates. ErdoIan controversially argues that higher interest rates result in lower growth rates.

Rawkins also noted the fundamental challenges that may have an impact on Turkeyand#39s rating, including geopolitical risks, political risks that may arise due to the general elections on June 7 and a large current account deficit that requires external financing.

Rawkins also pointed out that the inflation rate, which stood at 817 percent in 2014, is well beyond the central bank targets but added that it may fall as global oil prices decrease.

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SOURCE: Today’s Zaman