February 25, 2015 / 2:57 PM / 5 years ago

UPDATE 2-Turkey's Erdogan questions whether central bank under external influence

* Erdogan says rates policy unsuited to economic realities

* Questions whether bank under external influence

* Traders fear extension of power struggle with Gulen

* Lira extends losses on Erdogan’s comments (Adds quotes, details throughout)

By Orhan Coskun

ANKARA, Feb 25 (Reuters) - Turkish President Tayyip Erdogan stepped up his criticism of the central bank on Wednesday, questioning whether it was under external influence and warning that the good character of its governor was no defence against poor policy.

Erdogan did not make clear where the outside influence might be coming from, but traders took it as a thinly-veiled reference to the network of U.S.-based cleric Fethullah Gulen, a former ally-turned-foe whom Erdogan accuses of plotting against him.

The president, whose hectoring of the central bank has unnerved investors, said he did not object to its independence but would not hesitate to criticise its mistakes.

Its interest rate policy, he said, was “unsuited to the realities of the Turkish economy.”

“You are conducting an independence struggle against us, but are you dependent on some other places?” he said in a speech to a small business group in the capital Ankara.

“The interest rate policy which they supposedly implement to reduce risks has become a risk in itself.”

Erdogan blamed Gulen’s network of followers, known as “Cemaat”, for a corruption inquiry targeting his inner circle just over a year ago and has systematically purged state institutions of its suspected members in the police, judiciary and some regulatory bodies over the past year.

Several mid-tier managers were removed from the central bank last June, but no official reason was given.


Some government ministers, including Deputy Prime Minister Ali Babacan and Finance Minister Mehmet Simsek, have come to the defence of the central bank under governor Erdem Basci. But Erdogan said it was not a question of Basci’s character.

“Getting up (and saying) ‘the person in charge of the central bank is good and nice’ - I don’t look at the goodness or niceness, I look at what is done ... I look at the implementation,” Erdogan said.

The lira weakened to 2.4911 against the dollar after he spoke, heading back towards a record low of 2.5155 seen two weeks ago.

“Erdogan basically openly accused Basci of being from the Cemaat,” said one forex trader.

“The reaction was limited because of Fed-related optimism, otherwise the selling pressure could have been much heavier.”

Erdogan’s comments came a day after the central bank trimmed its main one-week repo rate by 25 basis points. Erdogan, who wants lower rates, said that was not enough.

“The more Mr Erdogan meddles in monetary policy, the more difficult he makes it for the central bank to establish credibility and the greater the scope for a sharper deterioration in Turkish assets,” said Nicholas Spiro, head of London-based Spiro Sovereign Strategy. (Additional reporting by Nevzat Devranoglu in Istanbul; Writing by Daren Butler and Nick Tattersall; Editing by Andrew Roche)

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