Reportedly, Central Bank Governor Gaye Erkan was sweating when faced with questions at the JP Morgan investor meeting she attended in New York, claims a well-connected Ankara pundit, Mr Erdal Saglam. Foreign investors wanted higher interest rates, as well as asking whether economy czar Mehmet Simsek will retain his post after local elections.
10News.net columnist and longtime Ankara correspondent Erdal Sağlam stated that Central Bank Governor Hafize Gaye Erkan, who went to the investors meeting in New York without the Minister of Treasury and Finance Mehmet Şimşek, was asked very tough questions. The relevant sections of Sağlam’s article are as follows:
* At the investor meeting held in New York, we learned that Central Bank Governor Gaye Erkan faced many questions regarding the course of economic policies.
* While the primary question was whether Minister Şimşek would remain in office, some investors pointed out that the interest rates on bonds in Turkey were not attractive enough, citing the increasing bond interest rates in the USA as an example. Investors have stated that the interest margin in Eurobonds is not enough to take Turkey risk.
* Additionally investors complained that they did not have mechanisms to manage their risks when entering Turkey and requested that transactions between domestic and foreign banks be liberalized. In other words, they wanted the Swap market to be opened.
What about the interest rate increase?
According to the indirect information Saglam received from those who attended the meeting, which was not reflected to reports of news agencies, Gaye Erkan tried to reassure fund managers about the exchange rates, suggesting that there would be no sudden movements as happened countless times before.
She reiterated Central Bank view that “We are reaching the end of monetary tightening” but, assured attendants that to combat inflation “whatever is necessary will be done, we are determined”.
Will Erdogan accept an additional interest rate increase?
“However, at this point”, writes Erdal Saglam, “I believe that Central Bank Governor Gaye Erkan will need to give clearer messages that she will increase the interest rates if the anticipated policy rate of 45 percent in the current tightening cycle is not enough to bring down price pressures”.
After the next rate meeting, the Monetary Policy Committee will need to give at least the message that “tightening will continue if necessary, depending on the data.”
Bankers Erdal Saglam consulted think that 45% policy rate may not be enough to stem the tide of inflation. His sources added that additional measures such as increasing the required reserve ratio will need to be brought to the agenda in order to nudge TL deposit rates higher to stop dollarization.
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