(Adds comments on budget, debt; background on crisis and policy)
By Nevzat Devranoglu
ANKARA, July 30 (Reuters) – Turkish Finance Minister Berat Albayrak said on Tuesday he expects more sharp interest rate cuts from the central bank, which should bring down inflation, and pushed back against investor concerns over government interference.
Albayrak – speaking a week after Turkey’s central bank delivered a sharper than expected rate cut, stoking concerns about its independence – said the bank makes policy decisions based on data sets and has entered an easing era.
At a rare press conference, the minister also acknowledged the budget deficit would be higher than target by year end, at less than 3%, and he predicted contrary to many economists that the recession-hit economy will log positive growth in 2019.
Turkey’s economy tipped into recession after last year’s currency crisis, which was its worst in nearly two decades and sent inflation soaring to above 25%.
The central bank responded with aggressive policy tightening that remained in place until Thursday, when it cut its key policy rate to 19.75%, from 24%, and set the stage for more.
“With the serious loosening of interest rates in Turkey in the recent period, and based on the fact that the interest rate trend will come down more clearly and strongly in the coming period, we have entered a period of interest rate cuts,” said Albayrak, Turkish President Tayyip Erdogan’s son-in-law.
“We need to express this here: the central bank makes its monetary policy and interest rate decisions based on its data set.”
The rate cut was Turkey’s biggest since at least 2003, and it was the first policy decision under new bank governor Murat Uysal, who took the reins after Erdogan sacked former governor Murat Cetinkaya some three weeks ago.
Erdogan, who has long urged lower rates, said he made the move because Cetinkaya did not follow instructions.
In the depths of last year’s crisis, the government announced a target budget deficit-to-GDP ratio of 1.9%. Albayrak said on Tuesday that though it will rise this year, debt levels are not a problem for Ankara.
One of the worst hangovers from the crisis is up to $20 billion in debt that energy and construction sector companies can no longer afford to service, and that sits largely on Turkish banks’ balance sheets.
Earlier this month, Reuters reported that the efforts to clean up the debt have stalled after initial plans for restructurings were put on hold.
Albayrak said the government will not compensate losses. “The private sector will conduct this process by themselves. There is no such thing as: ‘The government should do this, compensate losses’,” he said. “We will equally support the demands of all sectors.” (Reporting by Nevzat Devranoglu; Additional reporting by Ali Kucukgocmen, Ezgi Erkoyun, Can Sezer, Ebru Tuncay, Behiye Selin Taner and Ceyda Caglayan in Istanbul; Writing by Jonathan Spicer; Editing by Dominic Evans)