Turkey: Lower interest rates, galloping inflation

President Erdogan insists on low interest rates even if the Turkish lyre sinks. Economists criticize the policy of cheap money.

The lower the temperatures in Istanbul, the more often the city is shrouded in unprecedented clouds of smoke. Rising energy prices are pushing more and more people to burn wood or coal to heat their homes. The reason for the unprecedented rise in energy prices is mainly due to the monetary crisis that has plagued Turkey for the last three years. Inflation close to 20% is pushing the Turkish pound unbearably. At $ 1, ,6 10.6 is now required. Since the beginning of the year, the Turkish national currency has lost more than 30% of its value against the US dollar.

As time goes on, the Turks’ dissatisfaction with the Erdogan government, which has nothing substantial to oppose price fluctuations, intensifies. All her efforts to date have led to a dead end.

The tendency for the pound to depreciate is almost irreversible

Once again, the Turkish central bank tried to tame the financial crisis, reducing the key interest rate from 16% to 15%. At the same time, it hinted that next month it will further strengthen its loose monetary policy. It should be noted that just last month the Turkish central bankers reduced interest rates by 2 percentage points.

The course of interest rates in Turkey is determined indirectly but clearly by President Erdogan, a well-known opponent of high interest rates. However, it is common for high inflation to be combated internationally by raising interest rates.

Economist Güley Elif Gνldρίrμm criticizes the policy of cheap money: “Lately we have seen internationally one central bank after another raising key interest rates. In contrast, we in Turkey are following the opposite course.” The Turkala expert notes that by breaking the $ 10 barrier, the Turkish pound exceeded a psychological threshold: “We have never seen such an exchange rate in Turkey. This is an almost irreversible trend.”

At 22% the growth of the economy between April – June

For his part, economist Soner Kourou believes that both the Turkish market and the people now take it for granted that the policy of low interest rates will continue in the long run: “People are doing what they can to save their money from inflation. But even If they turn to gold as a lifeline, they indirectly strengthen the dollar since gold is dependent on the US dollar. More and more often we see Turks sleeping with dollar bills under their pillow. who have never traded in dollars treat the US hryvnia as a safe haven. ”

Despite the spike in inflation and the slip of the pound, the Turkish economy is also thriving. At a time when the devaluation of the hryvnia is causing problems, mainly in everyday life, it is very beneficial for exports, but also for investments in Turkey. According to data from the Turkish Statistical Office (TUiK), the Turkish economy grew by 21.7% in the second quarter of 2021. This is the biggest growth since 1999. Unfortunately, this growth of the Turkish economy, no matter how important, does not reach the wallet of the Turkish population. In recent months, rising inflation has made staple food items more expensive in the country, causing strong dissatisfaction among Turkish citizens.

Daniel Bellut

Edited by: Stefanos Georgakopoulos

Source: Deutsche Welle