Turkey’s central bank promises action after inflation surges to 18%

The comments from Turkey’s central bank underscore the volatile outlook for prices amid a currency crisis. (Reuters)
Updated 03 September 2018

Turkey’s central bank promises action after inflation surges to 18%

  • The lira has lost 40 percent of its value against the dollar this year
  • President Recep Tayyip Erdogan wants to see lower borrowing costs

ANKARA: Turkey’s central bank said it would adjust its monetary stance given “significant risks” to price stability, a rare move to calm financial markets after inflation surged to its highest in nearly a decade and a half on Monday. The comments from the central bank underscore the volatile outlook for prices amid a currency crisis. The lira has lost 40 percent of its value against the dollar this year, driving up the cost of goods from potatoes to petrol and sparking alarm about the impact on the wider economy and the banking system.
Inflation jumped 17.9 percent year-on-year in August, official data showed, outstripping market expectations and marking its highest level since late 2003.
“Recent developments regarding the inflation outlook indicate significant risks to price stability. The central bank will take the necessary actions to support price stability,” the bank said in a statement.
“(The) monetary stance will be adjusted at the September monetary policy committee meeting in view of the latest developments.”
For investors, the main question has been whether the central bank will be able to sufficiently hike interest rates at its next policy-setting meeting on Sept. 13 to tame inflation. It left rates on hold at its last meeting in July, confounding expectations and sending the lira sharply weaker.
President Recep Tayyip Erdogan, a self-described “enemy of interest rates,” wants to see lower borrowing costs to keep credit-fueled growth on track. Investors, who fear the economy is set for a hard landing, want big rate hikes.
Finance Minister Berat Albayrak told Reuters in an interview on Sunday that the bank was independent of the government and would take all necessary steps to combat inflation. He also promised a “full-fledged fight” against inflation.
By signalling that it was ready to take action, the central bank may now have inadvertently set financial markets up for disappointment if it doesn’t deliver a hefty increase, said Piotr Matys, an emerging markets forex strategist at Rabobank.
“A proper rate hike is required and by making a pledge to raise interest rates, the central bank may have raised the bar for itself to exceed expectations on Sept. 13,” Matys said. “The central bank basically has no room to disappoint.”
The lira briefly recovered some losses immediately after the central bank’s announcement. By 0852 GMT it was more than 1 percent weaker on the day at 6.6200 to the dollar.
The bank is likely to deliver a rate hike of 2 percentage points on Sept. 13, far short of the 7-10 percentage points that investors would like to see, said Jason Tuvey of Capital Economics in a note to clients.
Such increases are needed “to bring real interest rates back to positive territory and reassure the markets that policymakers are willing and able to tackle high inflation,” he said.


France ready to take Trump’s tariff threat to WTO

Updated 08 December 2019

France ready to take Trump’s tariff threat to WTO

  • Macron government will discuss a global digital tax with Washington at the OECD, says finance minister

PARIS: France is ready to go to the World Trade Organization to challenge US President Donald Trump’s threat to put tariffs on French goods in a row over a French tax on internet companies, its finance minister said on Sunday.

“We are ready to take this to an international court, notably the WTO, because the national tax on digital companies touches US companies in the same way as EU or French companies or Chinese. It is not discriminatory,” Finance Minister Bruno Le Maire told France 3 television. Paris has long complained about US digital companies not paying enough tax on revenues earned in France.

In July, the French government decided to apply a 3 percent levy on revenue from digital services earned in France by firms with more than €25 million in French revenue and €750 million ($845 million) worldwide. It is due to kick in retroactively from the start of 2019.

Washington is threatening to retaliate with heavy duties on imports of French cheeses and luxury handbags, but France and the EU say they are ready to retaliate in turn if Trump carries out the threat. Le Maire said France was willing to discuss a global digital tax with the US at the Organization for Economic Cooperation and Development (OECD), but that such a tax could not be optional for internet companies.

“If there is agreement at the OECD, all the better, then we will finally have a global digital tax. If there is no agreement at OECD level, we will restart talks at EU level,” Le Maire said.

He added that new EU Commissioner for Economy Paolo Gentiloni had already proposed to restart such talks.

France pushed ahead with its digital tax after EU member states, under the previous executive European Commission, failed to agree on a levy valid across the bloc after opposition from Ireland, Denmark, Sweden and Finland.

The new European Commission assumed office on Dec. 1.