Turkish President Recep Tayyip Erdogan has again spoken out against raising interest rates in order to curb the sky-high inflation in the country.
Erdogan explained the decision of the Turkish central bank earlier this week to leave interest rates unchanged at 14 percent for the fifth month in a row, despite rising inflation and pressure on the Turkish currency, the lira.
“Those who try to link interest rates to inflation are either illiterate or traitors,” Erdogan said, addressing a group of businessmen. “Pay no attention to the nonsense of those whose only quality is to see the world from London or New York.” This is not the first time Erdogan has pointed an accusing finger at the “interest lobby” for inflating the cost of borrowing and carrying out speculative attacks on the lira.
Contrary to the prevailing theory among economists, Erdogan believes that high-interest rates lead to high prices. He wants to use the cheap lira to help his country’s industry because it will make it cheaper for other countries to buy Turkish products. However, this fall in prices also fuels inflation because imports of fuel, for example, are actually becoming more expensive.
At 70 percent, annual inflation in Turkey is currently fourteen times higher than the central bank’s official target. The president acknowledged that the economic policies pursued by his administration since 2018 have taken a “heavy toll” in the form of a higher cost of living for citizens.
The Turkish lira lost more than 8 percent of its value against the dollar in May. This makes the Turkish currency the worst-performing currency of all emerging markets. Inflation is expected to rise to 74 percent in May.
Erdogan defended his government’s economic program as “consistent and scientific”. He said the current level of the lira helps to maintain Turkey’s competitiveness. “We’re all in the same boat,” he said. “There is enough data to hold hopes. We are doing well in terms of production, employment and exports.”