News / Economy

Turkey's Central Bank Hikes Interest Rates

FILE - Turkey's Prime Minister Recep Tayyip Erdogan talks to the media in Istanbul.
FILE - Turkey's Prime Minister Recep Tayyip Erdogan talks to the media in Istanbul.
Dorian Jones
Concerns are growing about Turkey's economy after Moody's cut its debt-rating outlook from stable to negative.  

The financial rating agency blamed political uncertainty for the move and the downgrade comes at a bad time for Turkey's prime minister, who is expected to run in the August presidential election.

The downgrade did not surprise financial markets, says analyst Atilla Yesilada, an analyst in Istanbul for Global Source Partners.

He says since last year’s wave of anti-government demonstrations, known as the Gezi protest, there has been growing concern for the economy.

"Since Gezi, Turkey has been suffering bout after bout of political instability, or that the economy has slowed down, or that the global financial conditions are very likely to tighten.  In such a scenario Turkey would [have an] extremely high foreign financing requirement, which I estimate to be equal to 25 percent of GDP," he said.

Even the success of the ruling AK party in last month’s local elections is becoming a cause for concern.  Initially, investors saw the victory as a sign of continued political stability.

But the chief economist of Turkey's Finansbank, Inan Demir, says there are concerns Prime Minister Recep Tayyip Erdogan has too much power.

"Because there may have been concerns on Moody’s part, regarding the concentration of too much power in the name of political stability, and perhaps they may have been concerned by the pressure on central bank as well," said Demir.

After his party's success, Erdogan called for Turkey's independent central bank to cut interest rates.  The bank nearly doubled rates in January to stave off a collapse in the currency.

Economist Demir warns interfering in the bank’s independence will cause deep unease in financial markets.

"The independent central bank had been a very important pillar of Turkey’s strong recovery after the 2001 crisis.  And that it would go back to market unfriendly practices of pre-2001 era, that would increase pressure on Turkey because Turkey would need strong policy-making anchors in a time of tightening global liquidity," he said.

But political analysts say Erdogan, who is expected to run in the August presidential election, is eager to cut interest rates to help the sluggish economy.  A decade of unprecedented economic growth has been important to Erdogan’s electoral success.

Yesilada at Global Source Partners says the election is likely to be key to determining future of the Turkish economy.

"All rating agencies will hold and wait for the results of the presidential elections.  And if the political noise continues afterwards, I am afraid toward the end of the year we may see a rating cut which would be devastating for the Turkish bond and fixed income market," he said.
Moody's last week downgraded the outlook for Turkey's government debt to negative, from stable. International ratings agencies like Moody's assess the economic or business strength of a bond issuer.

Cutting the outlook means Moody's has doubts about Turkey's ability to repay bonds in the future. Even though Moody's overall debt rating for Istanbul remains at investor grade, a downgraded outlook could make it more expensive for the country to issue new bonds.

The government has said one of its greatest achievements is that financial rating agencies have ranked Turkey's international debt as investor grade, which helps attract foreign investment and cuts borrowing costs.  

Market watchers warn that with investors becoming more hesitant about emerging markets, Erdogan will have to carefully his balance presidential ambitions against the sensitivities of the financial markets.

You May Like

Could Nemtsov Threaten Putin in Death as in Life?

Dynamic and debonair opposition leader had supported liberal economic reforms, criticized Russian president's aggression in Ukraine More

Oil Smuggling Highlights Challenges in Shutting Down IS Finances

Pentagon spokesman says Islamic State 'certainly continues to get revenue from the oil industry black market' but that airstrikes have made a dent More

India Focuses on Infrastructure, Investment to Propel Economy

Government expects economy to grow at 8 to 8.5 percent in next fiscal year More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Supreme Court Hears Hijab Discrimination Casei
X
Katherine Gypson
February 25, 2015 11:30 PM
The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video US Supreme Court Hears Hijab Discrimination Case

The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video Falling Gas Prices Hurt Nascent Illinois Hydraulic Fracturing Industry

Falling oil prices are helping consumers purchase cheaper petroleum at the pump. But that’s made hydraulic fracturing or “fracking” less economically viable for the companies in the United States invested in the process. VOA’s Kane Farabaugh reports on one Midwestern town that was hoping to change its fortunes by cashing in on the next big U.S. oil boom.
Video

Video Fighting in Sudan's South Kordofan Fuels Mass Displacement

Heavy fighting in Sudan's South Kordofan state is causing hundreds of thousands to flee into uncertain conditions. Local aid organizations estimate as many as 400,000 civilians have been internally displaced since the conflict began more than three years ago, while another 250,000 have fled across the border to refugee camps in South Sudan. VOA's Adam Bailes reports.
Video

Video Lao Dam Project Runs Into Opposition

A Lao dam project on a section of the Mekong River is drawing opposition from local fishermen, international environmental groups and neighboring countries. VOA's Say Mony visited the region to investigate the concerns. Colin Lovett narrates.
Video

Video A Filmmaker Discovers Her Biracial Identity in "Little White Lie

Lacey Schwartz grew up in an upper middle-class Jewish family, in a town in upstate New York where almost everyone she knew was white. She assumed that she was, as well. Her recent documentary, Little White Lie, tells the story of how she uncovered the secret of her true racial background. VOA’s Carolyn Weaver has more on the film.
Video

Video Deep Under Antarctic Ice Sheet, Life!

With the end of summer in the Southern hemisphere, the Antarctic research season is over. Scientists from Northern Illinois University are back in their laboratory after a 3-month expedition on the Ross Ice Shelf, the world’s largest floating ice sheet. As VOA’s Rosanne Skirble reports, they hope to find clues to explain the dynamics of the rapidly melting ice and its impact on sea level rise.
Video

Video US-Cuba Normalization Talks Resume Friday

Negotiations aimed at normalizing diplomatic relations between the U.S. and Cuba resume Friday. On the table: lifting a half-century trade embargo and easing banking and travel restrictions. There's opposition in Congress, but some analysts say there may be sufficient political and economic incentives in both nations for a potential breakthrough this year. VOA's Mil Arcega reports.
Video

Video Pakistan's Deadline For SIM Registration Has Cellphone Users Scrambling

Pakistani cell phone users have until midnight Thursday to register their SIM cards, or their service will be cut off. While some privacy experts worry about government intrusion, many Pakistanis are just worried about keeping their phone lines open. VOA Deewa reporter Arshad Muhmand has more from Peshawar.
Video

Video Myanmar Warns Factory Workers to End Strikes

Outside Myanmar's main city Yangon, thousands of workers walked off their jobs earlier this month demanding a doubling of their wages, pay raises after a year and input from labor unions on industrial regulations. Since Friday, the standoff has grown more tense as police moved in to disrupt the sit-ins, resulting in clashes that injured people from both sides. VOA correspondent Steve Herman visited industrial zones which have become a focus of Myanmar's fledgling workers rights movement.
Video

Video Oscar Winners Do More Than Thank the Academy

The Academy Awards presentation is Hollywood’s night to reward the best movies from the previous year. It’s typically a lot of glitter, a lot of thank you’s, a lot of speeches. But many of this year’s speeches carried messages beyond the thank you's. VOA’s Carolyn Presutti takes a look.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.8896
JPY
USD
119.26
GBP
USD
0.6475
CAD
USD
1.2451
INR
USD
61.816

Rates may not be current.