Turkey to bring down interest rates to make inflation fall
President Tayyip Erdogan said on Thursday he was “in charge of Turkey’s economy” as he piled pressure on the central bank to cut interest rates despite double-digit inflation and a tumbling lira. As Reuters reports, Erdogan was campaigning for local elections on Sunday in which his ruling AK Party, which has governed Turkey since 2002, is bracing for possible losses amid growing disenchantment among voters over the deteriorating economy.
The Turkish currency dived 5 percent against the dollar on Thursday after banks started providing lira liquidity to the London market again following several days of authorities withholding liquidity to support the currency. The renewed selling pressure stems from concerns about Turkey’s balance of payments, its ability to service its foreign debt, and repeated calls by Erdogan, who has described himself as an “enemy of interest rates”, for cheaper credit. “I’m in charge of Turkey’s economy. Who is at the head of the state now? It’s Tayyip Erdogan along with 14 ministers,” he told supporters at an election rally in the capital Ankara.
Opinion polls suggest the AK Party could lose control of Ankara and possibly of Istanbul, Turkey’s largest city where Erdogan once served as mayor. That would be a painful blow for a party that presided over years of stellar economic growth in Turkey. Erdogan said his government would rapidly start to implement structural reforms to bolster the economy after the elections against possible attacks by what he regards as speculators.
His unorthodox economic views have unnerved investors. Inflation, in double digits since 2017, rose to nearly 25 percent last year. In February it stood at just under 20 percent, but Erdogan repeated his view on Thursday that the solution was lower, not higher, borrowing costs. “The main issue is interest rates. As interest rates are brought down, inflation will fall,” Erdogan said. “The real problem is interest rates. I’m also an economist,” he added.
Earlier, he told young voters in Ankara that Turkey had thwarted “attacks” by the United States and the West on the lira and he accused some banks of playing games with the currency ahead of Sunday’s vote. He did not name the banks. “They can’t find lira now, they are struggling in terms of payments. The tables have turned. While they can’t do this, the lira firms and the dollar falls,” Erdogan said.
Instead, however, the lira weakened as far as 5.6465 per dollar on Thursday from 5.33 on Wednesday. Last year, it plunged almost 30 percent against the dollar. As of 1510 GMT, it had clawed back some of its losses to 5.57. “We must discipline the speculators in the market,” he said. Turkish financial regulators opened investigations into JP Morgan and other banks last weekend, accusing them of providing misinformation in reports that stoked volatility in the lira.