Turkish official says confidence in beleaguered lira must be boosted

Sakir Ercan Gul said the country needed to be selective in using credit and that cheap loans lead to higher inflation


ISTANBUL - Turkey's deputy finance minister said on Tuesday steps need to be taken to increase confidence in the Turkish lira, which has hit a record low against the dollar, and he cautioned against destabilising actions and statements.

Speaking at a conference in Istanbul, Sakir Ercan Gul said the country needed to be selective in using credit and that cheap loans lead to higher inflation.

He also said that dollarisation was a significant problem in terms of the currency's prestige. Turks have bought record amounts of foreign currencies in recent years as a hedge against double-digit inflation and lira depreciation.

"We have to reduce the level of dollarisation and we have to take steps to boost confidence in the lira," Gul said.

"We must avoid statements, behaviour and destabilising actions that would lead to economic adventurism," he added, without elaborating.

The lira closed at a record low of 8.8995 against the dollar on Friday, bringing its loss this year to more than 16%. It has shed two-thirds of its value in five years.

The weakness followed the Turkish central bank's unexpected 100 basis-point cut in its policy rate to 18% on Thursday, providing stimulus long sought by President Tayyip Erdogan despite inflation reaching 19.25% last month. 

Central Bank Governor Sahap Kavcioglu - whom Erdogan installed at the bank in March - has sounded more dovish in recent weeks, paving the way for the first monetary easing since May 2020.

Speaking at Tuesday's conference, Kavcioglu said global food prices had risen sharply and that continued drought and production conditions were affecting prices negatively.

However, he said he expects pricing behaviour to return to normal in Turkey as the effects of the COVID-19 pandemic ease.

"As the normalisation process advances in a healthy way, our Turkish Central Bank will take the necessary policy steps in the future, as it has done in the past," he said.

Some bond yields rose after last week's rate cut, a signal that policy may need to be reversed. The Treasury-backed credit guarantee fund could help ease firms' access to loans in sectors to ease Turkey's trade imbalance.

Gul also said the government was aiming for a budget deficit this year below the forecast 3.5% of GDP. He said regulations would be introduced to minimise the negative impact of cryptocurrencies.

(Additional reporting by Ebru Tuncay; Writing by Daren Butler; Editing by Jonathan Spicer and Steve Orlofsky) ((daren.butler@tr.com; +90-212-350 7053; Reuters Messaging: daren.butler.thomsonreuters.com@reuters.net))

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