ANKARA (Reuters) – Turkish growth will pick up as uncertainty over a June election clears, leaving more room for interest rate cuts, Economy Minister Nihat Zeybekci said, adding the government may lift some food import restrictions to fight inflation.
In an interview with Reuters late on Tuesday, Zeybekci said he expected growth to accelerate to well above 1.5 percent in the second quarter and that a 4 percent government growth target this year remained attainable.
High food prices, a major contributor to inflation, and the weak lira were temporary and driven largely by speculators seeking to profit from political uncertainty, said Zeybekci, who is himself standing for re-election to parliament on June 7.
“People are in waiting positions in terms of production and consumption due to the elections. This happens every election,” he said, predicting that markets would start pricing in a stable election period in the coming weeks.
“I believe the gears will start working normally in May. Once this happens, the pressure on the (lira) and inflation will lift,” he said.
The lira has hit a series of record lows in recent weeks partly due to the global strength of the dollar, but election uncertainty and political pressure on the central bank to cut rates have added to the currency’s weakness.
President Tayyip Erdogan, to whom Zeybekci is close, has repeatedly called for lower interest rates to boost growth and has equated high rates with treason.
Some economists say the bank may have to raise rates if the lira continues to fall and if inflation, which rose more than expected in April, stays high.
Zeybekci said he saw no reason for a rate hike despite the weak lira, which he said was 5-8 percent undervalued. But he also did not expect the bank to cut rates at its next meeting.
“I believe we can move in the direction we want after the elections more comfortably, but I don’t have such expectations today. The markets will pull interest rates lower after the elections,” he said, adding that inflation was “less permanently harmful” than low growth and weak employment.
The central bank left rates on hold at its last meeting in April, resorting to liquidity measures to try to support the lira, but last week sharply raised its inflation forecasts for this year and next.
Governor Erdem Basci has said food prices remain a risk and has urged the government to take measures.
Zeybekci said food inflation of around 14 percent was due to speculators and forecast that it would fall, but that the government could take steps including lifting import restrictions on certain food products.
“If imports can be allowed … without disturbing domestic producers, these type of decisions can be made,” he said.
“(But) we will not allow imports of wheat, barley, meat or processed foods, and we will not need it anyway. This year’s wheat yield will be at least 5 million tons above our need.”
Zeybekci also said he expected Standard & Poor’s to keep its credit rating on Turkey unchanged at a review on Friday, but predicted that agencies would upgrade their ratings on Turkey after the June election.
Markets should not be concerned about consistency in economic policy after the vote, he said:
“No matter who is in the economic leadership team, there will not be changes to the (ruling) AK Party’s policies.”
(Additional reporting by Tuvan Gumrukcu; Writing by Nick Tattersall; Editing by Toby Chopra)
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