AKP Head of Economic Affairs Nurettin Canikli stated that the government believes that former Central Bank President Naci Ağbal did not use monetary policy tools rationally to determine the interest rate and therefore was fired.
President Tayyip Erdoğan removed Naci Ağbal, who raised 875 basis points in less than five months into his term, from his post as head of the MB, and appointed Şahap Kavcıoğlu, who criticized the high interest rate, like him. The dismissal came just two days after the 200 basis point rate hike higher than expected.
Ağbal, who took office the moment promises of ‘reform in the economy’ began, has been under pressure from negative reserves, exchange rates and inflation ever since.
AKP Vice President Canikli made a statement on his Twitter account about the latest economic developments.
Canikli stated that the main duty assigned to the heads of the Central Bank by law is to guarantee price stability and that all the presidents who have served up to now have always adhered to the objective of achieving price stability by law: “It is not possible for no one who is appointed as head of the Central Bank to go beyond this objective, it goes against the nature of property. It is a scientific fact that stable growth, which is the main goal of governments, can only be achieved with a general price level that can be predicted and controlled at reasonable levels. Monetary policy tools are also designed with this in mind. A positive balance of the actual return provided by TL-denominated assets is necessary to keep the demand for TL-denominated assets alive. The negative real interest rate is known and seen to accelerate the shift from TL-denominated assets to gold and currencies and dollarization. The economy is not just a single balance, it is a set of balances. All of these balances need to be evaluated and modeled together. You need to be rational in the sense that positive real interest rates are at a level that will stop currency substitution and even pave the way for reverse currency substitution. “
The ‘optimal’ level of interest
On the other hand, emphasizing that it is a necessity that the positive real interest be at the optimal level, the AKP executive said: “The real interest rate below the optimal level will not stop the flow of dollarization. The real interest rate set above the optimal level, on the other hand, generates great costs for the economy. Production, export negatively affect employment targets. It affects the quality of the assets of financial institutions. One of the guiding factors for the optimal real interest rate is expectations, the expectations of the market. Market expectation sets the limit for positive real interest rates. Exceeding market expectations overloads the economy and raises expectations for inflation. Pricing in the economy is carried out in accordance with the expectation of rising inflation. This situation makes it difficult to achieve price stability, which is the main objective of the Central Bank. Changing the head of the Central Bank, which the government believes does not use monetary policy tools rationally to determine the optimal positive real interest level and therefore imposes a large financial burden on the economy, is not a challenge for markets. It simply reflects the sensitivity that the resources of the economy and the tools of monetary policy must be used efficiently and effectively. “
Canikli, Turkey’s economy for 19 years, the market rules are applied without compromising that, in the period of intense internal and external shocks stressed that it even allows the liberalization of capital movements: “The decisive implementation of the rules of the Market economy for Turkey’s economy has had a source of credibility should be underlined. From now on, decisive implementation of market rules and liberalization of capital movements will remain red lines. “