| ISTANBUL, April 15
ISTANBUL, April 15 An annual meeting of Turkey's
central bank on Thursday will be closely watched for signs that
Prime Minister Tayyip Erdogan's government, strongly opposed to
high interest rates, is trying to boost its influence over
Economists say the normally innocuous general assembly, at
which executives and technocrats are elected and reshuffled, has
taken on greater significance this year after Erdogan called two
weeks ago for an emergency interest rate cut to boost the
Governor Erdem Basci, speaking three days later, hinted at
the possibility of rate cuts for the first time in a year and
the bank has effectively already started loosening by the back
door, lowering borrowing costs by providing more liquidity
through its regular repo auctions.
Erdogan has been a vocal critic of high rates, eager to
defend his reputation for overseeing a decade of strong growth,
particularly as Turks go to the polls in a presidential election
in August in which he is widely expected to stand.
"The general assembly will be a milestone. Appointments made
here will tell us the extent of the interference with the
central bank," one banking sector analyst said, declining to
give his name because of the sensitivity of the issue.
The central bank - which, along with the government, says
its monetary policy committee alone decides on interest rates -
declined to comment.
"It's obvious the prime minister is disturbed by the bank's
interest rate policy," said another Istanbul-based economist.
"The appointment of members close to the government to the
bank's assembly may make its decision making and operations more
difficult," he said.
FEUD WITH CLERIC
The central bank stunned markets with a massive rate hike at
the end of January, ignoring political pressure - Erdogan had
spoken against such a move just hours earlier - as it battled to
defend the lira after it slumped to record lows.
The move restored its credibility in the eyes of some
investors, after months in which it had tried to support the
lira by burning through forex reserves and tightening liquidity
on the margins while avoiding outright rate hikes.
But questions over the extent of its independence remain.
Erdal Saglam, a columnist in the Hurriyet daily newspaper,
wrote on Monday that Erdogan's feud with an influential
U.S.-based cleric he blames for contriving a corruption scandal
could draw in economic institutions including the central bank.
Erdogan accuses cleric Fethullah Gulen, a former ally whose
network of followers has influence in institutions including the
police and judiciary, of plotting against him. The government
has responded by reassigning thousands of police officers and
hundreds of judges and prosecutors.
Gulen's supporters say they number in the millions and
members of his network are employed across Turkey's
institutions, including in the central bank.
"It looks like after the judiciary and comprehensive changes
in some ministries it has come to the key bodies in the economic
administration such as the central bank, the banking watchdog
(BDDK) and capital markets board (SPK)," Saglam wrote in an
unsourced opinion piece.
He said there had even been rumours in Ankara that Basci
himself might come under pressure to resign but said that
bankers he had spoken with had dismissed such a possibility.
The central bank and government officials declined to
comment on Saglam's article.
"Some heads will roll among the bureaucrats. But I don't
expect anything extensive," one former central banker told
Reuters. "Erdem Basci will not lose his seat."
(Reporting by Asli Kandemir, Ozge Ozbilgin, Birsen Altayli and
Seda Sezer; Writing by Nick Tattersall)