High interest rates are to blame for Turkey’s persistently high inflation, president Recep Tayyip Erdogan said after the latest data showed a new acceleration in price rises.
“We still have not been able [to] lower inflation and this is due to interest rates,” Reuters reported President Erdogan as telling deputies from his AK party today.
Year-on-year inflation climbed to 11.2 per cent in September, data published this morning showed. That is well above the central bank’s 5 per cent target.
“The fall in interest rates is unfortunately not at the level we would like. If we can’t achieve this, many troubles await us. We must solve this,” President Erdogan said.
It is far from the first time the Turkish president has piled the pressure on Turkey’s central bankers to loosen the country’s monetary policy, which he blames for holding back investment.
The central bank has so far resisted cutting rates, raising the benchmark rate late last year and keeping them on hold since.
“This just heaps more pressure on the CBRT to loosen prematurely,” said Timothy Ash of BlueBay Asset Management.
“What Turkey needs is orthodoxy and a positive confidence shock — not an alternative version of monetary policy reality from Erdogan,” Mr Ash added.
The Turkish inflation situation stands out in the EM world: most emerging markets where inflation had been high a year ago – in particular, if such inflation had been driven by exchange rate depreciation – witnessed inflation ultimately moderating after the central bank had stepped in with rate hikes and the currency had stabilised. Brazil, Russia and South Africa are all examples. Turkish inflation stands out by still accelerating afresh, even though the lira basket has been flat since January. This is probably partly related to the revival of demand in the economy, but probably more to stubborn inflation expectations, which have been structurally internalised because of repeated misses of the inflation target.
The lira has weakened against the dollar since mid-September, when the central bank decided to keep rates on hold, with the currency partially reversing the trend from the first eight months of the year.
At publication time the lira was trading at TRY3.583 per dollar, down from a closing price of TRY3.401 a week before the latest interest rate decision.