UPDATE - Turkey pledges to enhance financial institutions

UPDATES WITH MORE REMARKS FROM FINANCE MINISTER

By Aysu Bicer

ANKARA (AA) – Turkey will increase the “operational competencies” of all financial and relevant institutions, the country's new treasury and finance minister pledged Friday.

Following a decision on Thursday by the country's Central Bank to hike interest rates, Lutfi Elvan said the healthy functioning of the bank’s monetary transmission mechanism would be critical for price stability.

“The bank is responsible for determining and implementing policies and tools that will ensure price stability,” he said, adding that it would adopt a simple monetary policy framework in the coming period.

It is important that both credit and deposit markets operate in a competitive structure, the minister said.

“In this context, reducing intermediation costs and establishing pricing in credit and deposit markets within the free market mechanism is vital,” he said.

Achieving macroeconomic stability, including price stability, will be an important requirement for sustainable growth and increasing social welfare, he underlined.

“In this context, we’ll formulate our fiscal policies, financial sector policies, and public finance policies in a way that will continuously support macroeconomic stability, complementing the monetary policy steps that are being taken.”

- ‘Price stability to spur sustainable growth’

Supporting a monetary policy focused on price stability with public fiscal discipline, and determining public wages and pricing in line with inflation targets, will be critical for the rapid convergence of inflation expectations and targets, Elvan stressed.

“The main purpose of economic policies is to increase social welfare, which includes employment growth, fair income distribution, and sustainable growth,” the minister said.

“The precondition for these is macroeconomic stability.”

Undoubtedly, he added, price stability contributes to sustainable growth and social welfare by increasing predictability in the economy.

“This is a generally accepted situation, as demonstrated by the experiences of Turkey and other countries,” he said.

The Turkish Central Bank on Thursday increased its one-week repo rate – also known as the bank’s policy rate – from 10.25% to 15%, tightening its monetary policy to ensure price stability.