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

Video On the Scene: In Gaza, Darkness Brings Dread and Death

Palestinians fear nighttime raids, many feel abandoned by outside world, VOA's Scott Bobb reports More

African Small Farmers Could Be Key to Ending Food Insecurity

Experts say providing access to microloans, crop insurance, better storage facilities, irrigation, road systems and market information could enable greater production More

University of Michigan Wins Solar Car Race

Squad guided its student-designed solar-powered vehicle to fifth consecutive time victory in eight-day bi-annual American Solar Challenge More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Vietnamese Staging Chinese Product Boycott After Oil Rig Spati
X
Reasey Poch
July 28, 2014 7:18 PM
China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video Vietnamese Staging Chinese Product Boycott After Oil Rig Spat

China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video ESA Spacecraft to Land on a Comet

After a long flight through deep space, a European Space Agency probe is finally approaching its target -- a comet millions of kilometers away from earth. Scientists say the mission may lead to some startling discoveries about the origins of the water on earth. VOA’s George Putic has more.
Video

Video Young Africans Arrive in US for Leadership Program

President Barack Obama's Young African Leadership Initiative has brought hundreds of young Africans to the United States for a six-week program aimed at building their knowledge and skills in fields such as public administration and business. Out of the 50,000 young Africans who applied for the program, just one percent was accepted. VOA's Laurel Bowman caught up with some of those who made the cut and has this report.
Video

Video In Honduras, Amnesty Rumors Fuel US Migration Surges

False rumors in Central America are fueling the current surge of undocumented young people being apprehended at the U.S. border. The inaccurate claims suggest the U.S. will give amnesty to young migrants from the region. As VOA's Brian Padden reports from Honduras, these rumors trace back to President Obama's 2012 executive order to halt deportations for some young undocumented immigrants already living in the United States.
Video

Video Students in Business for Themselves

They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.