World Economy

Tapering priced in; won't hurt Turkey: Deputy PM

Nuruosmaniye Mosque in Istanbul
Ayhan Altun | Getty Images

Turkey's deputy prime minister told CNBC the country's economy will not be too badly affected by the winding down of the Federal Reserve's bond-buying program, because a lot of the risk was already priced in to the market.

Speaking at the World Islamic Economic Forum in London, Ali Babacan said the next three-to-four years would be an era of higher U.S. interest rates.

"The sheer announcement effect (of future tapering of asset purchases) has already kicked into many of the market indicators, including the borrowing rates of the U.S. Treasury itself," he said. "So actually taking the steps is going to probably bring some marginal effects to the market indicators, but we believe it is going to be limited."

(Read more: Fragile five: The new focus of currency wars)

Turkey has been dubbed one of the "Fragile Five" countries — a catch-all term for the most concerning emerging markets — by some economists. The other "Fragile five" are Brazil, Indonesia, India, and South Africa and all five are considered particularly sensitive to Fed tapering.

These countries' currencies saw a massive sell-off when it looked as though the Fed was going to begin winding down its asset purchases, known as Quantitative Easing or QE, this summer.

Emerging markets had benefited from QE, and loose monetary policy in several other developed economies, because they boosted global risk sentiment and resulted in more readily available cash for investors. But worries about the Fed "taper" to the QE program led to currency traders pulling their money out.

Prior to the Fed tapering furor, Turkey's economy has been picking up pace, growing by 4.4 percent in the second quarter year-on-year, beating expectations.

(Read more: Subway to Asia: Istanbul's new rail tunnel opens)

The country hopes this growth rate, which is substantially higher than most struggling European countries, will boost its case for becoming a member of the European Union (EU).

Turkey began negotiations to join the EU in 2005 — after first applying in 1987 — but talks have been delayed for the last three years.

Last week, the 28-member bloc agreed to resume membership talks with Turkey this November. Membership of the EU would give Turkey access to the world's largest trading union and allow the free movement of Turkish workers across the bloc, among other benefits.

(Read more: Can Turkey become 'the China of Europe'?)

Babacan stressed that Turkey already fulfilled many of the economic criteria for joining the EU, and was "moving fast" towards fulfilling the political criteria.

"Most of the barriers for Turkey are of purely political nature. Some of the existing member states don't have a very warm approach to our membership," he said.

"What we are trying to form in Turkey is a country where democracy, Islam and secularism co-exist and function in a nice way. I think our degree of success is going up-and-up every year," he said.

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop and Google