Hey! Erdoğan! Leave them kid(ding) alone!

“I don’t know the key to success, but the key to failure is trying to
please everybody.” The Central Bank of Turkey’s Gov. Erdem Başçı found
out the wisdom in this Bill Cosby quote the hard way this past week.

The Bank’s rate cut on May 22 was criticized by several analysts, including your friendly neighborhood economist. Unfortunately, it was not enough for Prime Minister Recep Tayyip Erdoğan, who slammed the Bank to a group of journalists on the way back from his rally in Cologne on May 25: “You raised the interest rate by five points all at once, but now
you reduce it by just a half point. Are you kidding?”

For the
record, the effective increase in interest rates at the end of January,
as measured by the Bank’s funding and interbank repo rates, was more like 2.5-3 percentage points. Moreover, the Bank probably prevented a financial crisis less than two
months before the local elections with its rate hike and literally saved Erdoğan’s derrière.

I did not take Erdoğan’s burst very seriously at first. After all, he had explicitly criticized monetary policy in the past. But he carried on at his party meeting on May 27 by emphasizing that the Bank kept
missing its inflation targets. He also implied that he would replace
Başçı when the governor’s term was up.

The key question is how the Central Bank will respond. According to DenizInvest’s Özlem Derici, Başçı will “either resign and allow the
government to appoint a pro-government governor” or bow to political
pressure and continue to cut rates. Both would tarnish the Bank’s
already-damaged credibility. Her less...