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PM Erdoğan lashes out at high interest rates

06 May 2011 [10:42] - TODAY.AZ
Turkish Prime Minister Recep Tayyip Erdoğan voiced his aim to "cut real interest rates," complaining that it is he who stands in front of the people, not the Central Bank, which currently sets interest rate policies.

Speaking Thursday at the 4th Istanbul Fashion and Ready Wear Conference, Erdoğan said real interest rates have to fall.

"I don’t have the authority to intervene in the Central Bank," Erdoğan said. "But on the ground it is me, not the Central Bank. I am in front of the people. When someone is aggrieved with interest rates, that person does not go and find Central Bankers, but they go and find me. He does not insult the bankers, he insults me. And I share my thoughts with you here."

Erdoğan repeated his opinion that interest rates and inflation are directly correlated, adding that the idea of raising interest rates will put pressure on inflation is wrong.

"We have to warn the finance sector, that gets rich through selling money," Anatolia news agency quoted Erdoğan as saying. "We put great importance on the solidarity of the finance sector with those who get rich by selling labor or products. We have to be fair in this issue."

Conflicting views

"He is absolutely right," said Gülnur Muradoğlu, a professor of finance at Cass Business School in London. "Due to the crisis, real interest rates in, for example, Britain, are in negative territory. While inflation is between 2-3 percent, the Bank of England’s main interest rate is at 0.5 percent."

An individual can borrow with an annual interest rate of 5 percent to buy a home in Britain, while in Turkey, monthly mortgage interest is at 1 percent, Muradoğlu told the Hürriyet Daily News. "Indeed, real interest rates in Turkey are too high, compared to continental Europe and Britain," said the professor.

Banu Kıvcı Tokalı, deputy general manager at Istanbul-based Destek Securities, disagreed. "Even if we are talking about long-term bond interest rates, which are above 8 percent, we are talking about a limited real interest rate of around 2 percent."

According to Tokalı, ongoing interest rate hikes in emerging economies will put pressure on the Turkish Central Bank, regarding its low interest rate policies. "As the financing of the high current account deficit depends on short-term capital inflows, insistence on a low interest rate climate could result in sudden fluctuations in foreign exchange rates," she said.


/Hurriyet Daily News/
URL: http://www.today.az/news/regions/85708.html

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