CBT Independence: How much longer?

TURKEY - In Brief 05 Feb 2015 by Atilla Yesilada

---

I’m writing this brief to address FAQs after the recent barrage of criticism by Erdogan about CBT’s erroneous ways which reached the point of questioning the wisdom of its independence. To summarize the salient points of the debate, allow me to share this question by a reader, whose name I shall not reveal, because time differences precluded me from asking her permission: “What do you guys think are the risks to CB independence? Is there enough pressure on Basci to resign? How about when Babacan's term is over in June, who would replace him? Do you think there will be a new presidential system with Erdogan at the helm following the June elections, and what are the implications for economic policy? And lastly, what is process of changing the Central Bank's mandate?" It is useful to read Dr Ucer’s reply first who goes over the basic territory. For me, Erdogan’s campaign has multiple purposes: · To invite Basci to resign to be replaced by someone whose philosophy of monetary policy is in full accord with the president. · If Basci were to stay, to force him to cut rates at each meeting, including the corridor ceiling, to give economy the kind of speed he needs to win an election victory. · To use CBT’s “high interest rate policy” to blame the slow economy on during the election campaign. Erdogan won’t ask Basci to resign, but pro-AKP press will soon resort to character assassination, painting him as a member of the Gulen Organization, or perhaps as a tool of the nefarious “High Rates Lobby”, which --believe it or not-- is a very real construct to the pro-AKP voter. As such, the first market risk is Basci’s resignation, in that case I’d not only be afraid of his successor g...