Turkish central bank facesinterest rate dilemma

Updated 12 July 2013
0

Turkish central bank facesinterest rate dilemma

ISTANBUL: Turkey’s central bank is facing calls to raise interest rates to steady the embattled lira despite political pressure from Prime Minister Tayyip Erdogan to keep rates low — a dilemma which could put the bank’s credibility at stake.
The lira has tumbled some 9 percent against the dollar since the beginning of May, $ 3.55 billion sold off in two days this week alone in its defense. Investor concerns the US Federal Reserve would scale back stimulus measures and anti-government protests across Turkey last month have driven losses.
An overnight signal that US money-printing may not end as soon as expected has eased pressure on the lira for now but Turkey remains most vulnerable to foreign capital outflows among emerging markets as it combats a huge current account gap.
Investor concerns about the bank’s room for maneuver have risen since Erdogan, who has overseen a boom in the Turkish economy during his 10 years in power, accused a ‘high interest rate lobby’ of instigating unprecedented protests against his government last month.
Without identifying the grouping any further, he accuses it of manoeuvring to undermine the Turkish economy in order to curb growing Turkish political and economic influence.
Such comments cast doubt on prospects for a rate hike, although a sharp whittling down of net reserves, now estimated by bankers to be below $40 billion, could set limits to the forex auctioning policy pursued this week.
“The central bank’s willingness to undertake such a rate adjustment is unclear, in particular given the strong government rhetoric against ‘high interest rate lobbies’,” said Christian Keller, Barclays Capital economist.
“Ultimately, only a combination of continued pressure on the lira and further forex reserve losses might force the central bank to act,” he said.
Analysts said the central bank could not afford to allow the lira depreciation to continue, while above-target inflation and rapid consumer loan growth also argued against the current low level of interest rates.
“The central bank cannot let the currency go as this could potentially lead to an inflation/depreciation spiral, hurt the bank’s credibility dearly and have a detrimental impact on corporate balance sheets,” JPMorgan economist Yarkin Cebeci said.
“Instead, if the lira remains under pressure, hiking rates would be a safer strategy for the central bank...We expect the bank to hike the policy rate at most by 100 basis points as a sharper increase could lead to increased political pressure and its benefit would be doubtful,” he said.
The central bank kept its main policy rate, the one-week repo rate, at 4.50 percent, its borrowing rate at 3.5 percent and lending rate at 6.5 percent at its last meeting on June 18. Its next meeting is on July 23.
However the bank is more concerned about growth which slowed sharply to 2.2 percent last year. It has undertaken a series of rate cuts since last September to try to spur the economy until last month, when it kept its rates on hold.
The bank is now focused on tightening liquidity to support the lira, burning $3.55 billion in two days this week after the lira hit an all-time low of 1.9737 against the dollar on Monday. It has sold $6.2 billion this year.
Central Bank Governor Erdem Basci vowed the tightening would be “strong, effective, temporary” and said it would only make a change in the bank’s interest rate corridor if the tightening fails to prevent excessive loan growth.
However the bank’s reliance on forex-selling auctions to support the lira has its limits.
“When autumn comes the central bank will have to change interest rates. The gap between market rates and the central bank interest rates widened so much. Benchmark bond yield rose to 9.3 percent while the policy rate is at 4.5 percent,” said Mehmet Besimoglu, chief economist at Oyak Securities.
With elections looming next year, Erdogan will have to weigh populist pressure in government to keep rates low with the need to protect the gains of his decade in power which have transformed Turkey economically and brought financial stability.
Erdogan has won three national elections in a row and appears still to enjoy broad support across Turkey; but it is not clear how June protests, and Erdogan’s hard-line declarations, will be reflected in next year’s local polls.
“The political authority would not favor a rate hike ahead of an upcoming election period,” Besimoglu said.
However, some market watchers said Erdogan’s resistance to raising rates could be eased by more pragmatic voices in government such as Deputy Prime Minister Ali Babacan.
“At the end of the day Erdogan listens more to Babacan. Erdogan has the final word but as long as Erdem Basci has the support of Babacan we will see a quasi-independent central bank,” said a London-based fund manager who declined to be named.
“Erdogan may say no at first to rate rises but if Babacan insists he will eventually agree,” the fund manager said.
Another key figure in Erdogan’s decision making will be Finance Minister Mehmet Simsek, a former London banker, who highlighted in comments on Twitter overnight the doubling in Turkey’s benchmark bond yield to 9.4 percent since May.
Blaming the sharp rise in yields on global economic developments and the increasing risk premium due to last month’s protests, Simsek’s comments underlined the government’s concerns about higher interest rates.
“If the rise in yields permanent, unfortunately, a bigger portion of the taxes we collect will have to be allocated to interest instead of services,” he wrote.


‘Naked Diplomat’ author Tom Fletcher bares all on life as UK ambassador to Lebanon

Updated 26 May 2018
0

‘Naked Diplomat’ author Tom Fletcher bares all on life as UK ambassador to Lebanon

Tom Fletcher might be best described as “the anti-diplomat.” Not in the sense that he sees no value in diplomacy, but in his steadfast refusal to live up to the stereotype expected of the ambassadorial profession.
While British ambassador in Beirut, he tweeted his way to acceptance by his hosts with an informal style and social accessibility that was in distinct contrast to the stuffy image of the traditional diplomatic circuit.
He told the BBC that there was not a single Ferrero Rocher in the embassy building — referring to the chocolates jokingly associated with the job after a 1990s TV commercial — and his “Dear Lebanon” farewell blog in 2015 after four years in the job boosted his broad international online appeal.
Now, Fletcher is running a portfolio of careers in the space where business, technology and public policy intersect. He is a visiting professor at New York University in Abu Dhabi, specializing in international relations, and is also involved with the Emirates Diplomatic Academy, the “ambassadors’ finishing school” in the UAE capital.
The former envoy is also chairman of the international board of the UK’s Creative Industries Federation and a member of the United Nations’ Global Tech Panel, as well as continuing a career as a successful author. His book “The Naked Diplomat” explored the interactions between governments, technology and big business, and became an international bestseller.
His experience and Internet renown make him a star attraction on the international forums circuit. He was on a panel in Dubai recently to discuss the findings of the 10th Arab Youth Survey, and afterwards went into some detail on the findings of the poll, which showed — alarmingly for some — that the US was waning in popularity in the region under President Trump and that Russia was increasingly regarded as a friend for young people in the Middle East.
Fletcher told Arab News that there was some reason to be worried about those findings, but also cause for optimism. “We have seen a striking fall in reputation among young people in the region since the US elections. But it was also worth noting the wider admiration for the American people as a whole, which looks quite resilient.
“The Russia results were interesting, because Russia has not always been a stabilizing force in the region. On Trump, they are further confirmation that the election of the leader of the free world created a vacuum. But the lights will eventually come back on in the shining city on a hill,” he said.
The survey seemed also to reveal a generational split in the Arab world, with many youngsters demonstrably not sharing their elders’ view of the US president. “I think that the region has access to the same information as the rest of us, and can take from it a pretty clear assessment of Donald Trump’s reliability. There are clearly some areas of alignment with some countries, such as the rejection of the Iran deal. But the survey shows that people across the region also hear the Trump administration’s wider messaging on the Middle East,” Fletcher said.
The Iranian situation was clearly on his mind, but he said there were alternatives to an escalating confrontation between the US and the Gulf states on the one hand, and the regime in Tehran on the other. “Wherever you stand on the Iran deal, its violation is a concern for regional security. The issue we have to ask ourselves is ‘what is the alternative for restraining Iran’s nuclear potential?’ Personally, I haven’t seen a better answer to that than the existing Iran agreement.
“Of course, the Iran deal in itself isn’t sufficient in reacting to Iran’s wider regional role, not least in Syria. But I worry that it is the hard-liners in Tel Aviv and Tehran who seem keenest to end the agreement,” he said.
A lot of his time in Beirut was spent dealing with the regional fallout from the Syrian crisis, which started just as he began the ambassador’s job. Surely, seven years on and with no solution in sight, that represents a failure of traditional diplomacy?
Fletcher’s response was, well, diplomatic. “Not all has failed. Huge effort has gone into keeping Lebanon relatively stable, despite the scale of the Syria crisis just across the border. Diplomacy has failed on Syria and on Palestine/Israel. But George Mitchell (the American politician credited with helping bring about an end to the Northern Ireland conflict in the 1990s) said that making peace was 700 days of failure and one of success. We have no choice but to keep trying, and to work harder than those who want to see diplomacy continue to stumble,” he said.
Fletcher’s work in the Gulf has enabled him to take a broad overview of developments in the region, and there is no more intriguing situation than in Saudi Arabia, which is going through a rapid transformation of the economy and society under the Vision 2030 strategy. “I think there has been a shift in international opinion on Vision 2030 over the last year. Initially many were curious, and conscious of the obstacles.
“But there is now a growing realization of how important a reform agenda is, especially if it succeeds in creating more opportunity for young people, including women. We all should hope it succeeds — I think it can, but will need maximum involvement of citizens themselves in shaping an open approach,” he said.
Fletcher also has a clear view of the kind of socioeconomic order that will emerge from the transformational policies of regional leaders.
“The Gulf has clearly realized that there is a need to move away from oil dependency well before the oil runs out. The answer has to lie in a knowledge economy. I’m heartened by the kinds of issues that my students at NYU AD want to work on and pioneer. And by the government focus on themes like wellbeing and education reform.
“Twenty-first century skills will need to be at the heart of the school curriculum, with learners encouraged to be curious, to seek out sources of knowledge and wonder, and to learn teamworking and innovation. This is happening increasingly in the larger cities, but there is still work to be done to mainstream knowledge, skills and character in education systems,” he said.
With the power of Big Data coming under scrutiny as never before in cases such as the controversy over Facebook’s role in the political process in the US and elsewhere, Fletcher’s work for the UN is more relevant than ever, and he believes there is a big role for the Gulf states to play in that debate.
“The Middle East needs to ensure it is better represented in the international architecture. It needs to be a key part of the debate about security and liberty online — the UAE Artificial Intelligence Minister (Omar Bin Sultan Al-Olama) is a great example of this. And it needs to help get everyone on to a free Internet,” he said.
Before entering the diplomatic service, Fletcher was an adviser on foreign policy to three British prime ministers, which gives him a unique perspective on the big current issue in the UK — the increasingly bitter process of leaving the EU, or Brexit.
The search for new trading partners has seen a succession of British ministers visiting the Gulf region in a bid to clinch new business. Fletcher does not share the view of some that the UK is destined for insularity and isolation in the post-Brexit world.
“The UK is going through a complex process, but it is always at its best when it has a worldview formed from having actually viewed the world. When it is open minded, outward looking. When it stands for more liberty — rights, trade, thought.
“The creative industries are already showing the way. And the royal wedding was a brilliant reminder of what the UK can be — diverse, modern, self-aware, creative. We all badly needed that reminder,” he said.
Fletcher was the youngest person ever to get a major ambassadorial post, and seems well set to pursue a handsomely paid career in virtually any sector, from international policy-making, to domestic UK politics or the private sector.
But he still regards himself as a diplomat with a creative twist. “I still write diplomat on the landing cards in planes.” And there is a second book in the works, he revealed: “I’ve just finished a murder novel, featuring an ambassador detective,” he said.
It is doubtful there will be a Ferrero Rocher mentioned in the book.