May 25, 2018 / 1:49 PM / a year ago

After 'late' rate hike, Turkey won't oppose markets, Simsek says

ISTANBUL (Reuters) - Turkey won’t look to push back against financial markets, Deputy Prime Minister Mehmet Simsek said on Friday, although he acknowledged investors remained concerned after the central bank was slow to react with a rate increase this week.

FILE PHOTO: Turkish Deputy Prime Minister Mehmet Simsek speaks during a television interview after IMFC plenary the IMF/World Bank spring meeting in Washington, U.S., April 20, 2018. REUTERS/Yuri Gripas

The central bank on Wednesday hiked its top interest rate by 3 percentage points to 16.5 percent at an emergency meeting called to avert a full-blown crisis in the lira. The currency has tumbled some 20 percent this year on deepening concern about President Tayyip Erdogan’s grip on monetary policy.

“Turkey will solve all its issues with a rules-based, market economy and will not stand stubbornly against markets,” Simsek said in an interview with broadcaster NTV.

“We understand the concerns of the market. We understand the worries that investors might have. We took the necessary steps to address these concerns and we will continue to do so.”

Simsek, a former Wall Street banker, and central bank governor Murat Cetinkaya are due to meet with overseas investors next week, in what are likely to be talks aimed at soothing concerns about the outlook for Turkish policy.

They will also meet with representatives of Turkey’s financial and business world in Istanbul on Sunday, bankers said.

Investors appear to remain skeptical. The lira currency initially recovered after Wednesday’s emergency rate hike but has since given up a large slice of those gains.

Simsek acknowledged that the central bank had been slow to react, although he said it had been effective.

“The central bank took a strong step although it was a late one, and it was effective,” he said.

It took days of preparation by Turkey’s top economic ministers and intervention by the prime minister to convince President Tayyip Erdogan of the need for a sharp increase in interest rates, three people familiar with the matter told Reuters.

A self-described “enemy of interest rates” Erdogan has, with elections just a month away, repeatedly called for lower borrowing costs to fuel credit growth and spending.

International investors want to see higher rates to rein in double-digit inflation and have dumped the lira on concerns about Erdogan’s influence over monetary policy.

Simsek said the emergency rate hike proved the central bank’s independence and that it would continue to take necessary measures with the support of the government.

Additional reporting by Nevzat Devranoglu in Ankara; Writing by David Dolan; Editing by Daren Butler and Toby Chopra

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