Turkish Recep Tayyip Erdogan said his position on keeping interest rates low will not waver as the lira continues to fall, sparking sporadic protests throughout the country.
The lira has lost more than 45 percent in value against the U.S. dollar over the past year. The Trends Journal has reported on its plunge in recent months. (See “TURKEY: THE FAMOUS LIRA DIVE,” “TURKEY: A CRIME TO TELL THE ECONOMIC TRUTH” and “TURKEY’S CENTRAL BANK GOVERNOR FIRED AFTER RATE HIKE.”)
The lira’s tailspin awakens memories of the currency’s 2018 crash, when it lost a third of its value amid soaring inflation and an increasing rate of loans defaulting.
Erdogan was in the eastern city of Siirt on Saturday when he told an audience that he hopes that the lira will soon stabilize.
“Tayyip Erdogan said low interest rates yesterday, says low interest rates today, and will save low interest rates tomorrow,” he said, referring to himself in the third person. “I will never compromise on this because interest rates are a malady that make the rich even richer, then the poor even poorer.”
He vowed that keeping the interest rates low will help revive the economy, which has prompted others to question his judgment. He has pressured his central bank to continue to lower its benchmark rate to 15 percent on 18 November, the third cut since September. The Financial Times reported that the country’s annual inflation is about 20 percent.
Turkey’s central bank sold foreign currencies for the first time in seven years to stabilize the lira. Al Jazeera, citing unnamed sources, reported that about $1 billion was sold. The report said Turkey has spent about $165 billion over the past three years to prop up the currency.
Last week, Lutfi Elvan, Turkey’s finance minister who the FT called “the last remaining voice of economic orthodoxy” in Erdogan’s cabinet, announced that he will step down.
The paper, citing local media outlets, said he was replaced by Nureddin Nebati, a former deputy finance minister who recently offered full-throated support of Erdogan’s move to cut interest rates. Nebati is reportedly close with Erdogan’s son-in-law Berat Albayrak. We reported that Albayrak stepped down from the post, saying his decision was based on health issues.
Erdogan has bristled against the traditional economic position that lower interest rates lead to higher inflation. He addressed his country on Tuesday and insisted that any rise to interest rates would crush industrial production.
He said he intends to break the “vicious cycle” of being an interest-based economy and asked the public to be patient.
Harun Ozturkler, professor of econometrics at Kırıkkale University, told Al Jazeera that Erdogan’s assumptions are wrong.
“They are assuming lowering interest rates would lead to high exchange rates, and the Turkish lira would devalue, depreciate, and then Turkish goods and services will become cheaper in terms of our trade partners’ currency. But that’s a strange relationship,” he said. “It does not work that way.”
TREND FORECAST: As we noted in “Turkey: Lira Down, Interest Rates Crashing. War Next?” (19 Oct 2021), the country’s crashing currency and soaring inflation continue to roil an increasingly chaotic and unstable Turkish socioeconomic and geopolitical environment. Foreign investors are pulling their cash out before Turkey’s economy crumbles completely.
As the global economic recovery decelerates—and as inflation keeps rising across the globe—the lira and Turkey’s economy will continue to decline. Ongoing COVID restrictions will worsen Turkey’s plight; nearly 13 percent of its GDP rests on travel and tourism.
Erdogan’s domestic popularity recently fell to a two-year low and will continue to sink with citizens’ economic prospects.
For that reason, look for Erdogan to become more belligerent in his comments and actions directed at foreign “enemies.” Remember, as Gerald Celente has noted, “When all else fails, they take you to war.”
Erdogan has shown a willingness to intervene in the Armenia-Azerbaijan conflict, and recently had an uncomfortable conversation with Russian President Vladimir Putin who accused him of selling more drones than previously reported to Ukraine. And we alert readers that his other targets may be the Kurds and Syria.