Istanbul, July 12, 2018 (AFP)
Turkey's new finance minister, the son-in-law of President Recep Tayyip Erdogan, on Thursday sought to reassure sceptical financial markets after his surprise appointment prompted a new battering for the lira and Turkish assets.
Erdogan on Monday named Berat Albayrak, 40, the husband of his elder daughter Esra, as treasury and finance minister, in a cabinet reshuffle for his second term under a new system that hands the head of state expanded powers.
His rapid promotion from the energy ministry took many market participants by surprise, while pragmatic, market-friendly faces like outgoing deputy premier Mehmet Simsek and finance minister Naci Agbal were conspicuous by their absence.
But in his first detailed comments in the job, Albayrak said that the independence of the central bank should not be called into question and vowed to bring inflation under 10 percent.
The lira has lost over six percent in value against the dollar since his appointment and fell sharply late on Wednesday to new record lows precariously close to 5 to the dollar.
- 'Like never before' -
A key concern of markets has been the independence of the central bank, with Erdogan repeatedly urging rate cuts despite high inflation and now able to directly appoint its leadership under the new presidential system.
"The independence of the central bank and its decision-making mechanisms cannot be a subject of speculation," Albayrak was quoted as saying by the state-run Anadolu news agency.
He said that the central bank's capacities should be widened in the pursuit of price stability. "One of the main aims of our policies in the new period is a central bank that is effective like never before," he said.
Markets are also concerned that Erdogan underestimates the dangers posed by inflation, which surged to over 15 percent in June for the first time in almost one-and-a-half decades.
The president was quoted by Turkish newspapers including the Hurriyet newspaper on Wednesday as saying "we will see a decrease in interest rates," and warning high interest rates could hurt employment.
- 'Moment of truth' -
But Albayrak said that the "fundamental priority" in the upcoming period would be fighting inflation.
"We will take steps to first bring inflation in the shortest time down to single digits and then to our target," he added.
The recent inflation figures have made a mockery of the central bank's inflation target of 5 percent.
Albayrak's comments helped the lira make up some of its losses from Wednesday, trading at 4.85 to the dollar, a gain in value of 1.3 percent on the day.
Analysts at Commerzbank said the "moment of truth" would strike for the lira on July 24 when the central bank holds its next meeting, warning capital controls "may prove unavoidable" if it fails to hike rates sufficiently.
The bourse has also been hit, with shares in Garanti Bank, one of Turkey's top private lenders, shedding some 24 percent in value over the last five days.
Turkey enjoyed strong growth in 2017 but the widening of its current account deficit -- which grew to $57.6 billion in May -- has raised concerns the economy is overheating.
Meanwhile, several of Turkey's biggest industrial companies have been forced to negotiate with creditors to restructure debt after the lira depreciation increased their financial burdens.
- 'Erdogan's Achilles' heel' -
Fadi Hakura, associate fellow at Chatham House, said it was debatable if Albayrak has "the competence to placate jittery financial markets and foreign investors."
He added defaults by major Turkish companies "would reverberate across the Turkish economy... and potentially lead to a crisis within the Turkish financial system."
Erdogan built much of his popularity on his stewardship of the economy which helped lift Turkey from the traumas of hyperinflation and the 2001 financial crisis.
But even after his outright win in last month's presidential elections, economists warn that Erdogan needs to tackle growing imbalances in the economy.
"The deteriorating state of the economy is his Achilles' heel and the biggest threat to his currently unrivalled leadership," said Hakura.

Sumber : AFP