Turkish economic recovery hinges on strong monetary policy – World Bank

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Turkey’s economic recovery will depend on robust monetary policy due to the country’s high inflation rate and likely cuts to stimulus by the U.S. Federal Reserve, a senior World Bank official said. The World Bank sees economic growth of 5 percent and average inflation of 15.5 percent in Turkey this year, said David Knight, a senior economist for the institution, Reuters reported on Thursday. Turkey will need to keep interest rates sufficiently high to defend the economy from a switch to tighter U.S. monetary policy, Knight said in a web presentation with Hakan Kara, the former chief economist of Turkey’s central bank. “The outlook this year is very uncertain and hinges on the course of policy … especially monetary policy and the effectiveness of COVID control measures,” Knight said during the presentation of a World Bank report on Turkey. The central bank’s current benchmark interest rate of 19 percent is appropriate, Knight said. “Robust” monetary policy will be needed to maintain economic growth, he said. Turkey was one of the few economies to grow last year as the central bank kept interest rates at below inflation, helping the government to engineer a borrowing boom via a surge in lending by state-run banks. The central bank was forced to raise interest rates from September to defend the lira after it fell to successive record lows. Annual inflation in Turkey has accelerated to 17.1 percent, the highest in major emerging markets outside of crisis-hit Argentina. “Monetary policy does not look tight enough to contain (Turkish) inflation expectations at this point,” Kara said. There appears to be hesitancy about raising interest rates, he said. Turkish President Recep Tayyip Erdoğan sacked the governor of the central bank in mid-March after he raised interest rates from 10.25 percent during a four-month tenure. The new governor has sympathised with Erdoğan’s unconventional view that high interest rates spur inflation rather than help reduce it.

Ahval

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