Türkiye needs to advance its recently adopted and more sustainable economic approach to attract foreign investors, according to EBRD President Odile Renaud-Basso, as the bank itself invested record levels in the country.
Since June, a new-look cabinet and central bank have reversed yearslong easing cycle in a shift to more conventional policymaking by embracing aggressive interest rate hikes and beginning to unwind some financial market regulations.
The new policy path “needs to carry on” as a long-term strategy, Renaud-Basso told an interview with Reuters on Thursday, just before meeting the Central Bank of the Republic of Türkiye (CBRT) Governor Hafize Gaye Erkan, who earlier in the day delivered another 500-point rate hike.
Asked what would finally convince foreign investors to feel confident, Renaud-Basso said: “There needs to be a bit of time to see a persistent and durable policy strategy.”
The latest rate hike to 40% reflects this, Renaud-Basso said, adding the policy rate “will need to remain at a high level for quite a long time to really rebuild confidence.”
After winning reelection, President Recep Tayyip Erdoğan named a new economic team, including Mehmet Şimşek as treasury and finance minister and Erkan, a former Wall Street banker, as CBRT governor.
The new administration showed aggressive monetary tightening in a bid to tackle the country’s long-term inflation issue.
Since June, the central bank has embarked on a 3,150 basis-point tightening cycle – including hikes of 500 basis points in each of the last three months.
The European Bank for Reconstruction and Development (EBRD) invests more in Türkiye than in any other country. This year, it is on track to deliver at least 2.5 billion euros (around $2.7 billion), an all-time high.
Much centers on the southeast, where devastating earthquakes in February killed over 50,000 people and flattened cities and towns. EBRD plans to invest 1.5 billion euros over two years with a focus on repairing water, electricity and other infrastructure.
At EBRD’s Ankara office, Renaud-Basso said the bank had been winding down investments in Türkiye heading into this year.
“But seeing the policy shift, which is very important, and also with the impact of the earthquake we have increased it again and reached the highest historical level for investment,” she said.
Ankara says it aims to attract outside bond investors and foreign direct investment (FDI) to help bolster foreign exchange reserves, supporting an effort to cool inflation that is above 61% and expected to climb into next year before dipping after May.
The central bank said on Thursday it will maintain tight policy “as long as needed to ensure sustained price stability.”
“In the past indeed there have been some turnarounds,” said Renaud-Basso, who also met Treasury and Finance Minister Mehmet Şimşek on her four-day visit to Türkiye. But “listening to the authorities, I am confident that they know this needs to be sustainable.”
The funds for earthquake recovery could rise but the first priority is disbursing the allotted 1.5 billion euros, she said, after visiting the disaster zone this week.
Winter “is going to be very difficult for people…particularly in (the hardest-hit province of) Hatay where living conditions and shelters are minimal,” she said.
Source: Daily Sabah
