TODAYSZAMAN.COM – Turkish gov’t highlights Central Bank’s ‘independence’ to revive investor confidence

Turkish gov’t highlights Central Bank’s ‘independence’ to revive investor confidenceTurkish Prime Ministryand#39s office has praised Central Bankand#39s role in the past decade in stabilizing Turkish currency and economy, highlighting the independence of the Central Bank amid investor concerns that the authorities are ramping up efforts to subdue the bank.A statement released on Tuesday came immediately after a key meeting on economic matters, headed by Turkish Prime Minister Ahmet DavutoIlu.

The statement said ministers responsible for economy, chairmen of financial watchdogs and relevant officials participated the meeting. Central Bank Governor Erdem BaII and nine other ministers were present in the meeting.

It added that the officials discussed developments in international markets and their impact on the countryand#39s economy.It noted that officials had consensus on andquotmore positive outcomeandquot than expected in the inflation rate and current account deficit, stressing the andquotpowerful pillarsandquot of the Turkish economy and vowing to maintain the strict fiscal discipline.

In line with governmentand#39s andquotstrong and balanced growthandquot, the statement added, the authorities are working on an economic package that will bolster industrial production, employment and investment structure of Turkish companies.Efforts by Central Bank to defend the Turkish lira did little to lift it off record lows on Tuesday, outweighed by a globally strong dollar and concern about President Recep Tayyip ErdoIanand#39s intervention in monetary policy.

In a complex series of steps, the bank said it would adjust its reserve requirements – used to control the amount of dollars in the market – to temporarily boost forex liquidity by some $1.5 billion over the coming weeks.

The lira weakened to 26316 to the dollar, just shy of a record low hit last Friday, partly as expectations of a US interest rate hike pushed the dollar to multi-year highs.The statement mentioned signals coming from the US and Europe, pointing to recovery of the US economy andquotbetter than expectedandquot and blamed the weakening of the local currency on a recent program by the European Central Bank for rapid monetary expansion.

It acknowledged, however, that the weakening of the Turkish lira was a andquotlittle bitandquot more than other emerging markets.The lira has fallen around 12 percent against the dollar this yearIts falls have been exacerbated by ErdoIanand#39s demands for sharp interest rate cuts to boost growth ahead of a June election.

That has tied the central bankand#39s hands, leaving it unable to contemplate a rate hike and trying instead to defend the currency with policy adjustments on the margins.BaII will brief ErdoIan on Wednesday on the latest developments.

The statement said Turkish banking system is immune to similar shocks in international markets, praising the banking watchdog BDDK for andquoteffective regulation and inspection.andquotThe statement praised the Central Bankand#39s role since 2002, including its successful interventions during 2009 world financial crisis, to take measures against fluctuations in financial markets.

It stressed its independence from the government, but added that the Central Bank has been in close consultation with the government for 12 years.andquotToday the Central Bank takes necessary measures at necessary times in line with monetary policies,andquot the statement said.

SOURCE: Today’s Zaman