Turkey’s new Finance Minister Lutfi Elvan pledged Tuesday to pursue “market-friendly” policies and rein in inflation after taking over from President Recept Tayyip Edrogan’s powerful son-in-law.
Elvan’s comments came after Erdogan stunned the markets and some top officials by accepting the resignation of Berat Albayrak — the husband of the president’s elder daughter Esra — and replacing the beleaguered head of the central bank.
The unexpected shakeup propelled the lira Monday to a five percent gain against the dollar after it had lost nearly a third of its value since the start of the year.
The lira’s plunge to historic lows came despite the central bank spending more than $100 billion since 2019 in an effort to prop the currency up.
The failed defense of the lira was maintained while the central bank kept following Erdogan’s wishes not to raise the main interest rate.
Analysts said the policy had been backed by Albayrak.
The new finance minister issued a statement moments after being sworn into office by parliament in which he pledged to “fight inflation in a determined fashion through fiscal policies and all available tools.”
Analysts interpreted the comment a signal that he was willing to accept higher interest rates.
Higher rates make currencies more attractive by increasing the return on local investments. A hike would thus bolster the lira against the dollar and euro.
But Erdogan believes high interest rates cause inflation and ousted a previous central bank chief who was raising them in 2019.
Turkey’s annual inflation rate stands at nearly 12 percent — more than double the government’s original target.
– Rate decision looms –
Elvan said Turkey was entering “a period of recovery in which the effects of the pandemic diminish and new opportunities emerge.
“In this context, we will focus on a market-friendly transformation that includes… macroeconomic stability,” he said.
Turkey’s main Borsa Istanbul market was trading near a record high after Elvan’s comments were released.
“Good comments from Elvan to kick off his tenure,” BlueBay Asset Management economist Timothy Ash remarked.
Turkey’s new central bank chief Naci Agbal will chair his first monetary policy committee meeting on November 19.
The bank raised rates for the first time in two years in September — from 8.25 to 10.25 percent — but disappointed investors by holding them steady last month.
Some analysts now expect the main rate to go up to as high as 15 percent in the coming months.
Fitch Ratings said the appointment of a new central bank governor “brings the possibility of an improvement in monetary policy credibility.”
But Fitch added that the second change of command at the bank in less than two years “highlights its limited independence from political pressure.”
Turkey’s TUSIAD industry and business association also expressed guarded optimism at the changes.
“It is necessary to observe free market principles, to increase predictability in economic policies and to strengthen the independence and merit of institutions,” it said Tuesday.