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The Turkish Central Bank has recently posted a book defending its independence on its official website, amid criticism about political influence over its decisions.
The book, “Independence of the Central Bank – Republic of Turkey’s Central Bank and Independence,” which had been distributed to universities last year as a financial education text, states that the Central Bank has been working in many economic fields, from finance of public spending to balance of payments, but an exclusive importance has never been attached to its dependence. The Central Bank defines “independence” as making decisions independently about monetary policies by categorizing independence in terms of purpose, instruments, financial and institutional.
Recently, Central Bank Gov. Erdem Başçı and his administration have been criticized by the government, particularly by Economy Minister Zafer Çağlayan. The minister said the Central Bank’s essential field of work was to provide price stability and financial stability, which had to be in line with government’s policies. However, the Central Bank’s book said, “Independence is the most important factor for central banks, the main goal of which is to assure price stability in order to boost economic prosperity.”
The book said the Central Bank should be independent in warning about threats to price stability, such as politicians’ demands for operating over economic capacity or financing public debts with the Central Bank’s resources. “Governments, which focus on the election process, may tend to apply policies which privilege economic growth in the short term, by ceasing their previously declared policies,” it said, adding that this was called “time incoherence.”
Further, the Central Bank should use monetary policy instruments and methods independently without requiring approval of a government or another authority to achieve its main goal.
After Başçı said in January that keeping the inflation rate, growth rate and ratio of current account deficit-to-national income unchanged at 5 percent was ideal for the economy, Çağlayan objected, saying the government had the final word for monetary policies and Başçı was only a “functionary appointed by the Cabinet.” The book points out that the institution’s independence, including executives’ term duration, their appointment or departure, is determined by laws, which means its structure is shaped away from political pressure.
The Central Bank should focus on its inflation target independently without political or financial restraint, which is an important precondition of its success, the book said, whereas the inflation target is a polemic between the bank and political power, Hurriyet Daily reports.
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