May 28, 2022

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The Turkish lira continues to depreciate and Erdogan promises to reduce inflation

The Turkish lira continues to depreciate and Erdogan promises to reduce inflation

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The Turkish lira recorded an unprecedented fall in value of more than 17.5 against the dollar on Monday. For his part, Turkish President Recep Tayyip Erdogan on Sunday pledged to reduce inflation as he adopted a monetary policy that stimulates growth and production, boosts exports and lowers interest rates. The currency crisis has pushed many Turks below the official poverty line, while hundreds took to the streets of Ankara and Istanbul over the weekend to protest the government’s monetary policy.

Turkish President Recep Tayyip Erdogan on Sunday promised to reduce inflation, which undermines the purchasing power of his citizens, and renewed his opposition to raising interest rates. And the Turkish currency recorded a decline on Sunday, reaching 17.5 against the dollar Monday.

It is noteworthy that Erdogan has long opposed the traditional economic model, reiterating that lower interest rates are part of the “war on economic freedom” and that higher interest rates will drive up inflation.

“Sooner or later, when I come to power, we will reduce inflation to four percent (…) and reduce it again,” Erdogan said during a Turkish-African summit in Istanbul on Saturday.

“But I will not allow my citizens and my people to be oppressed because of interest rates,” the Turkish leader told a meeting with African youth, who said in a video clip released on Sunday, “If God wants, inflation will fall. Soon.”

The last inflation rate was four per cent in 2011, but it has been rising steadily since 2017. The Turkish central bank has cut key interest rates by 500 points since September, under pressure from Erdogan.

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He then came back and cut it for the fourth time last week, with annual inflation reaching 21.31 per cent in November, but experts expect another rise this month.

In a speech in Istanbul on Sunday evening, Erdogan stressed the need to cut interest rates. He also lashed out at TUSIAD, the association of independent traders and businessmen in Turkey, stressing that Turkey is under “useless attacks”.

The union provoked Erdogan on Saturday by calling on the government to abandon current economic policies and return to “rules of economic science”.

The Turkish president is calling for lower interest rates to stimulate growth and production and boost exports. The Turkish lira has lost about 40 percent of its value against the dollar since early November, with fears of further declines.

The currency crisis has pushed many Turks below the official poverty line, and hundreds took to the streets of Ankara and Istanbul over the weekend to protest the government’s monetary policy.

But Erdogan noted last week’s historic decision to raise the minimum wage by 50 percent from next year.

There are fears that Turkey will impose capital restrictions after the lira devaluation, but Erdogan described these concerns as “trivial matters”. “The Turkish economy will continue its path according to free market rules,” he said.

France 24 / AFP / Reuters