ANKARA (Reuters) - Turkey is not considering imposing any capital controls, the chief economic adviser to President Tayyip Erdogan said on Monday, after an overhaul of the central bank sent the lira down nearly 12% in a week.
“There are no capital controls on the agenda in any way, soft or hard. Claims and statements regarding capital controls are complete products of the imagination and disinformative,” Cemil Ertem told Reuters.
Erdogan’s replacement of former governor Naci Agbal with Sahap Kavcioglu, who supports the president’s view that high interest rates lead to high inflation, led to market turmoil amid concerns Turkey may return to unorthodox economic policies, including imposing capital controls to protect its currency.
Those concerns were further stoked when the overnight swap rate for the lira in London markets shot up to 1,400% last week, before easing gradually. It stood at 17.25% on Monday.
The sudden surge was reminiscent of a previous unorthodox practice that had been used to protect the lira by choking offshore markets before Agbal was appointed.
“The central bank is implementing a free floating regime and there will certainly be no compromises on this. The new central bank governor Kavcioglu also thinks the same way,” Ertem said.
He also said that the central bank targets inflation and not the exchange rate.
The shock removal of the hawkish governor lead analysts to believe an interest rate cut may come earlier than expected. Some said the policy rate, now at 19%, could drop below inflation, which stood at 15.6% in February.
In an interview with Bloomberg published on Monday, Kavcioglu played down the “prejudiced” expectations of a rate cut in April or following months.
He also said Turkey will continue with a free-floating exchange rate regime and that the exchange rate will be determined based on the supply and demand balance.
Reporting by Orhan Coskun; Writing by Ali Kucukgocmen; Editing by Dominic Evans
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