Friday, December 03, 2021
Pressure on Erdogan is growing
Turkish inflation at three-year high
The Turkish President Erdogan wants to fight price increases with interest rate cuts. Economists think this is a very bad idea. Meanwhile, the inflation rate has cracked the 20 percent mark.
The inflation rate in Turkey rose for the sixth month in a row in November in view of the drastic devaluation of the local currency, the lira, and officially exceeded the 20 percent mark. The price of goods and services rose by 21.3 percent compared to the same month last year, according to the statistics office. That is the highest value in three years.
The high inflation is reducing the income and savings of the Turks, which puts many households in distress. Cafes and restaurants saw the biggest year-over-year increase, followed by the grocery and soft drinks category. On a monthly basis, consumer prices rose 3.51 percent in November.
Economists expect that this is a long way from reaching the end of the flagpole. In the coming year, inflation rates of around 30 percent could be achieved. This is largely attributed to the strong currency devaluation, as imports such as medicines, oil and other raw materials have to be bought more expensively abroad. This year the Turkish lira has lost around 47 percent of its value.
Erdogan insists on his course
According to experts, this is also due to the fact that, despite high inflation, the central bank has significantly reduced its key interest rate in recent months – to currently 15 percent. The Turkish President Recep Tayyip Erdogan had repeatedly interfered in the monetary policy of the central bank and called for interest rate cuts in recent months. The president remains fixated on the unconventional view that higher interest rates caused prices to rise rather than slow them down.
The prospect of further rate cuts has sparked a violent sell-off of the lira, which has depreciated sharply this year, adding to the cost of major imports and fueling inflation. “Interest is an evil that makes the rich richer and the poor poorer,” Erdogan defended the controversial course this week.
Under pressure from Erdogan, the Turkish central bank lowered its key interest rate for the third time in three months in November, although inflation is in the double-digit range and well above the medium-term target of 5 percent.
Erdogan wore out three central bank chiefs within two and a half years, which has shaken the credibility of the monetary authorities. This week he also replaced Finance Minister Lütfi Elvan with his previous deputy, Nureddin Nebati, after only about a year in office. This defended the controversial interest rate. The new finance minister tweeted that it was “no problem” to keep interest rates low under the current market conditions.
The Turkish opposition leader Kemal Kilicdaroglu moved in front of the statistics office building and accused the institution of manipulating the numbers: “You are making the numbers smaller!” He said. The numbers are not trustworthy and the authority has become a “palace institution”. Independent observers such as Enagrup estimate inflation to be significantly higher, in November at over 58 percent.