Head Of Central Bank Of Turkey Could Face Jail Time

Reports claim that a lawsuit has been filed by prosecutor Serif Aydin against banking chief Erdem Basci concerning interest rates.

According to news channel Haber7, based in Turkey, Aydin has accused Basci of inflicting serious material damage on the people of Turkey thanks to his policy on interest rates. It has been a difficult week for Basci, after the President of Turkey, Recep Tayyip Erdogan, criticized his work and claimed that he will be held accountable if he cannot handle the duties which are expected of him, writes Rufiz Hafizoglu of Trend.

Turkey: interest rates remain high

If the case were to reach trial, Aydin claims that Basci could be imprisoned for up to 2 years. His complaint stems from what he sees as mismanagement of interest rates.

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President Erdogan weighed in on the issue. “Despite the fact that the government has repeatedly demanded that the central bank lowers the main interest rates, the regulator hasn’t until today responded to this demand,” he said.

Erdogan’s economic theories are in contrast to accepted economic orthodoxies on the relationship between inflation and interest rates. “They say they will cut interest rates if inflation falls, this is not a proper understanding; this is the wrong logic because the causality is not one of inflation as reason and rates as outcome. Rates are the reason, inflation is the outcome,” he said.

Pressure on for Basci

In January Basci reduced the benchmark one-week repo rate by 0.5%, taking it to 7.75%. This marked the resumption of a policy that he had suspended 5 months earlier while waiting to see if the U.S. Federal Reserve would raise its interest rates. The move led to widespread criticism from government ministers, who saw the move as one that changed too little, too late.

The central bank of Turkey’s next Monetary Policy Committee Meeting was due to take place on February 24, but Basci is considering calling an early meeting on Wednesday. His decision will be informed by the latest round of inflation data, which will be released on Tuesday.

The Turkish lira recently hit a record low against the dollar amid ongoing economic turmoil, with inflation rates of 8.31% recorded in 2014.