US leniency on S-400 offers Turkey chance to repair economy

In his first press conference as the new governor of the Central Bank of the Republic of Turkey, Murat Uysal reduced the nation’s inflation forecast and said he had “considerable” room to implement more interest rate cuts in the coming months.

Uysal was appointed by President Recep Tayyip Erdogan earlier this month after his predecessor was dismissed for resisting aggressive interest rate cuts. During his speech on Wednesday, he echoed comments by Turkey’s Finance Minister Berat Albayrak the previous day that state leaders would seek to implement financial policies to revive Turkey’s long-ailing economy.

“In the upcoming period, we have a considerable room for maneuver on rates. Its application, timing and size will depend on the improvements on prices and financial stability,” Uysal said. “We will make [the decision] based on data.”

The press conference came a week after Uysal implemented Turkey’s first monetary easing policies in four years, slashing the central bank’s key interest rate by 425 basis points to 19.75%. The cut was deeper than most investors had expected, but made little initial impact on the nation’s currency, the Turkish lira, which has since appreciated slightly.

Such policies can be risky at a time when Turkey’s inflation rate hovers just below 16%, unemployment remains high and many banks and private companies struggle with foreign currency-denominated loans following the lira’s collapse in August 2018. Yet some observers say that Turkish officials have been granted a window of opportunity to repair the nation’s economy by US President Donald Trump’s reluctance to impose widely anticipated sanctions for Erdogan’s acquisition of Russian-made S-400 missile defense systems.

Whether the central bank will now move to improve credibility issues and address the root causes of the nation’s sluggish economic growth remain to be seen, said Wolf Piccoli, co-president and political risk analyst at Teneo Intelligence.

“There is a grace period now provided by the improved external backdrop, but they are not using the grace period to fix the house,” Piccoli told Al-Monitor. “Actually, what they are doing is more damage and are generally just trying to gain more time.”

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