Inflation rate above 40 percent awaits Turkey in 2022, says renowned economist

Duvar English

Renowned economist Prof. Dr. Oğuz Oyan said that Turkey will experience an inflation rate of at least 40 percent in 2022 amid massive price hikes.

“We are entering 2022 with a very serious inflation stock. Therefore, an inflation below 40 percent in the upcoming year would be a dream. Therefore, people would be crushed under this. As a result, the raises in all of the wages will be revoked. Inflation is the most unjust taxation; it is stealing people's bite,” Oyan told daily Evrensel on Jan. 1.

Oyan also touched upon the new government system which aims to protect lira deposits from foreign exchange fluctuations. As part of the rescue plan, the government will make up for losses incurred by the deposit holders if the lira's decline against the foreign exchange rate exceeds the interest rate promised by the bank.

Like many other economists, Oyan said that such a plan is in fact a veiled interest rate hike and actually promises an interest rate of 35 percent instead of the officially announced 14 percent.

“By giving the foreign exchange rate difference, they have increased the interest rate from 14 to 35 percent. But of course, this is an estimation depending on how much the Turkish lira will lose value next year. But the thing is that the demand for the foreign exchange-protected deposit accounts is not as high as they expected. I think this is where the rulership got really stuck,” he said.

Turkey's lira has logged its worst year since President Recep Tayyip Erdoğan came to power nearly two decades ago, despite his appeal on Dec. 31 for Turks to trust his unorthodox policies of slashing interest rates in the face of soaring inflation.

The lira - by far the worst performer in emerging markets in 2021, as well as in the last few years - shed 44% of its value against the dollar over the year and 19% in the last week alone.

The currency crash was triggered by the central bank's 500 basis points of rate cuts to 14% since September, carried out under pressure from Erdoğan, who appointed the bank governor in March and has since replaced much of its leadership.

Economists and former central bankers have called the easing reckless given inflation is expected to hit 30% in December due to the lira depreciation. Goldman Sachs expects it to reach as high as 40% by mid-2022.

The new deposit scheme is intended to reverse a tide of dollarisation. Under it, the state covers the difference between deposit rates and the foreign exchange and gold rate for lira converted into the new instrument.