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Meanwhile, in Turkey:
After the March 30 local elections, Turkish Prime Minister Recep Tayyip Erdogan began applying suffocating pressure on Erdem Basci, the governor of Turkey's Central Bank, to lower the interest rates he deemed as too high.

The frequent calls to "lower the interest rate" by Erdogan in his usual abrasive manner, in a language tantamount to scolding, are threatening the presumed independence of the Central Bank and denting the international prestige of the institution.

[...]

Erdogan's reaction to Basci was harsh. In his address to the AKP parliamentary group on May 27, he said, "So what? What independence? ... Don't make fun of people [by lowering the interest rate by] half a point. This interest rate is too high. This has to go down so that real investments will increase. We are politicians. We are accountable to people."

He continued, "It's enough. I have to say this. ... The interest rate is the cause, inflation is the effect."

According to Erdogan's thesis, which points to inflation as an effect of interest, if the interest rate is lowered, inflation will follow.

by gk (gk (gk quattro due due sette @gmail.com)) on Thu Jun 5th, 2014 at 07:03:17 AM EST
Why doesn't he stick to what he knows best, like banning twitter?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jun 5th, 2014 at 07:06:17 AM EST
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Well, what he knows best is micro-managing every aspect of Turkey. He's already assumed direct control over the judiciary, the police, the media... why should the central bank escape him?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Jun 5th, 2014 at 07:16:53 AM EST
[ Parent ]
According to Erdogan's thesis, which points to inflation as an effect of interest, if the interest rate is lowered, inflation will follow.

A good one. This idea is e.g. shared by Jaime Caruana, General Manager of the Bank for International Settlements. But obviously in this other direction: Inlfation in the Eurozone is low because rates are low!

For Turkey the situation is not so easy. If you are a smaller economy you have to import a lot, therefore dropping the value of your currency can have substantial negative effects. That is why capital control is so important. Turkey should have controlled the influx of money, to prepare for its inevitable outflux.

by rz on Thu Jun 5th, 2014 at 07:08:49 AM EST
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