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CB Governor endorses IMF loan ‘so long as it’s cheap’
Yılmaz was speaking on the sidelines of the an approaching annual IMF-World Bank Annual Meetings in İstanbul and said that Turkey's rapid growth would need to be supported with foreign financing. Whether the money came in the form of foreign direct investment (FDI), foreign bank loans or an IMF agreement, Yılmaz said, was irrelevant. “It's not important where the money comes from.
We can borrow from the IMF. The key is that the money is cheap.” He emphasized that the country's capital account deficit would be around $10 billion at the end of the year.
Central bank anticipates minor change in year-on-year inflation The Turkish Central Bank on Monday announced that it expects Turkey's year-on-year inflation to see only a slight change irrespective of any impact of the global financial crisis on the domestic market, while they noted that there could be a fluctuation in inflation starting in the final month of the year. Releasing their report on price changes for September, the central bank said a recent increase in electricity prices and the expiration of the government's tax incentives would only have a slight impact on year-on-year inflation. Noting that Turkey's inflation rate was 5.27 percent according to the consumer price index (CPI) in September, the central bank statement said main indices show that a decline could continue through the coming months. The central bank said inflation for goods has increased by 0.22 percent, while the increase was 0.85 percent for the service sector in September, over the same month of 2008. The inflation rate for transportation declined to 2.82 percent in September, the lowest level in Turkey's history, while entertainment and education costs saw an increase in the same period, leading also to a slight increase in inflation for service sub-sectors. Noting that energy prices increased by 0.63 percent in the given period, the central bank statement said a recent 9.68 percent hike in electricity prices for household use, which will go into effect starting from Oct. 1, will negatively affect October inflation. The statement stressed that there may be a marked increase in durable goods prices in October following a Cabinet decision to not renew the government's tax reductions in certain sectors. The government's tax cuts have been in effect for the past six months, which created noticeable rejuvenation in the markets. |
Touching on an emerging row between the bank and the prime minister, who suggested last month that the bank should no longer be an independent organization, Yılmaz reminded the audience, made up mostly of members of the press, that the bank would remain independent as per legislation implemented by the government in the aftermath of the 2001 crisis, when the country's banking system was on the verge of total collapse.
Last month Prime Minister Recep Tayyip Erdoğan said the bank's autonomy limited the government's room for maneuver in economic policymaking. "There are some autonomous institutions, and now they are a source of difficulty for us. I do not approve of the status of the central bank," the press quoted Erdoğan as saying. Yılmaz declined to comment at the time.
Erdoğan was also reported as making strong comments last month to the effect that he would not give autonomy to the Revenues Administration (GİB), which has been one of the key sticking points in negotiations with the IMF for a new stand-by agreement.
Economy Minister Ali Babacan, however, said several days later that the central bank's autonomy was not in question, claiming the bank has been the basis of the country's economic success. "Our central bank, which is independent, has done an excellent job on price stability. This will continue to be the case," Babacan said.
In the aftermath of the 2001 Turkish financial crisis, which some describe as the worst financial crisis in the republic's history and which witnessed dozens of banks collapse as a result of a poorly regulated banking system engaged in excessive risk taking, the IMF made the bank's independence a prerequisite to signing the now-concluded stand-by agreement.
In the conference, Yılmaz also focused on the bank's rate cuts, signaling that inflation would continue to be closely monitored. He said that although they expect inflation to stay in the single digits for the time being, this was only an estimate and could be revised if necessary.
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