Turkey denies reports on deputy PM's resignation

Babacan met PM late on Wednesday, triggering speculation but officials dismiss talk of resignation

Turkey denies reports on deputy PM's resignation

 

World Bulletin / News Desk

President Tayyip Erdogan's broadside against the central bank has raised concern about the future of its governor and of respected Deputy Prime Minister Ali Babacan, an anchor of investor confidence in Turkey for more than a decade.

Erdogan questioned on Wednesday whether the bank was under external influence and slammed its monetary policy as "unsuited to the realities of the Turkish economy" after it failed to meet his repeated demands for sharper rate cuts than those it had made the previous day.

Traders took his comments as a thinly-veiled reference to U.S.-based cleric Fethullah Gulen, a former ally whom Erdogan accuses of infiltrating state institutions in a bid to unseat him, and whose followers have been systematically purged from bodies including the police and judiciary over the past year.

Babacan, who is in charge of the economy and has been a staunch defender of central bank independence, met Prime Minister Ahmet Davutoglu for more than two hours following Erdogan's comments, which rattled financial markets.

Several Turkish newspapers questioned whether Babacan had offered to resign at the meeting late on Wednesday. Three senior officials told Reuters they had no information of any such discussion, while Energy Minister Taner Yildiz said such a move was "out of the question".

But the fate of Babacan and Basci are seen as closely linked. Babacan proposed Basci as central bank governor, and is his main defender in cabinet against Erdogan and other ministers' unrelenting criticism of monetary policy.

Even if their departure is not immediate, the likelihood of Turkey's current economic management team remaining in place after a June parliamentary election appears to be diminishing.

A three-term limit for ruling AK Party deputies already meant there was a question mark over Babacan's return, although there are ways round this, such as his reappointment as a minister without being a member of parliament.

"The president's remarks have not caused a breakup yet, but they have put pressure on the economic team," said one senior government official.

"These remarks damage their credibility and reduce the chances that the same administration will continue their duties after the elections."

Turkish assets opened weaker on Thursday, but later eased into positive territory, helped by upbeat emerging market sentiment although the lira was trading at 2.4825 against the dollar by 1140 GMT, from 2.4863 late on Wednesday.

In the last two days it has lost around 2 percent against the dollar, while emerging market currencies have gained 2 percent, according to Reuters data.

UNSUSTAINABLE

Basci, highly respected for his command of academic theory, has at times been criticised by the market for an overly complicated monetary policy mix but is generally seen as trying his best to navigate around political pressures.

Those pressures are only likely to intensify as the June election approaches, further unnerving investors and leaving Basci and Babacan in an almost impossible position.

"It's hard to predict where it's heading. It's clear that nobody benefits from these remarks," said one senior banker.

"Under these circumstances, it is very difficult for Babacan and Basci to continue their duties. From now on, whatever action the central bank takes will be perceived as politically motivated. The power of monetary policy is being undermined."

On Tuesday, Turkey's central bank cut all its main interest rates, despite inflation still coming in well above the government's 5 percent target. The easing divided analysts, with some seeing it as a sop to government pressure.

But Davutoglu called for faster and deeper cuts almost immediately after the announcement.

Güncelleme Tarihi: 26 Şubat 2015, 15:35
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