(Bloomberg) — President Recep Tayyip Erdogan threw his full support behind the new central bank governor ahead of a key interest rates decision next week. The lira rallied.
Erdogan’s comments are critical for Governor Naci Agbal, who faces a key test of credibility as investors watch the Nov. 19 interest rates decision for a sign of a return to orthodox policies after former Finance Minister Berat Albayrak’s two-year-long battle to rein in free markets hurt confidence.
New Finance Minister Lutfi Elvan and Agbal will pursue “transparent and predictable” policies to curb inflation, Erdogan said.
“In this context, I would like to express that I will stand by them in every step they take,” Erdogan told ruling AK Party lawmakers in parliament on Wednesday.
The Turkish leader’s comments offer the strongest evidence yet that the lira’s recent weakness and the low level of foreign exchange reserves are forcing a change of heart among policy makers. Erdogan pledged a policy mix more attentive to expectations of foreign investors and urged trust in the local currency. While he still repeated his widely discredited belief that higher interest rates fuel inflation, he signaled that he is taking a step back from his central role in policy matters.
“Like everywhere else around the world, in our country it is the central bank’s job to determine and implement policies needed to rein in inflation,” Erdogan said.
Erdogan’s apparent U-turn on his attitude to economy management follows a chaotic weekend during which he fired the central bank governor, triggering the resignation of Albayrak, who’s also the president’s son-in-law. The promised policy shift got an instant endorsement from investors.
The lira rose as much as 3.5% against the dollar to trade below 8 for the first time since Oct. 26 and was trading 2.7% higher at 3:26 p.m. in Istanbul. The benchmark Borsa Istanbul 100 Index rose 1.9%, hitting a new all-time high led by the surge in banking shares.
Below are other highlights of Erdogan’s speech:
Turkey is determined to bring down country risk and increase returns for investors“We will not hesitate to apply the right prescriptions even if it is painful”“We will see gains made by domestic and foreign investors who trust in Turkey’s economy and lira as our own gains”Policy makers will be in close contact with investors; Turkey will organize meetings with international investors“The way to strengthen our reserves is to increase confidence in the lira”“Of course, we have difficulties and troubles in the economy, but the picture in front of us also points to serious successes that buoy our hopes”
Related Slideshow: News in pictures (Provided by Photo Services)