Erdoğan says expects inflation to fall with interest rates cuts, lira crashes further

Turkish President Recep Tayyip Erdoğan has once again repeated his unorthodox view that a low interest rate policy will decrease inflation. “We're currently reducing the interest rate, and hopefully we'll see inflation also decrease,” he said, also predicting a 10 percent GDP growth rate by the end of this year.

Wednesday December 01 2021 12:12 am

Duvar English

Turkish President Recep Tayyip has once again reiterated his unorthodox view that “the interest rate is the cause and the inflation is the result.”

“We're currently reducing the interest rate, and hopefully we'll see inflation also decrease,” Erdoğan told Turkish state broadcaster TRT during an interview on Nov. 30.

Erdoğan said that he forecasted a GDP growth of at least 10 percent by the end of this year. “Our expectation is that we will reach 10 [percent]. Our forecast is at least 10 [percent], but it might go over that,” he said.

"Until the elections, we will see lower interest rates and better exchange rates, including improvement in inflation."

In the face of Erdoğan's remarks, the Turkish lira hit a new record low of 13.47 against the U.S. dollar.

The Turkish president also said that he hoped Turkey would post a current account surplus in 2022 and that stability in the exchange rate can only be possible with exports and tourism income.

"We are no longer posting current account deficit and financing this deficit with external debt, but we are moving towards an economy that gains foreign currency and posting current account surplus," he said.

"It is time for foreign investors to make long-term investments (in Turkey). Those who have made long-term investments in Turkey have always won, and they will keep winning," he said.

The lira has lost 45% of its value so far this year and 29% this month alone against the U.S. currency, which was boosted in late-session trading.

The volatile selloff in November puts it among the ranks of crises in 2018, 2001 and 1994, according to Goldman Sachs research.

In response to the cuts to 15% in the policy rate, the opposition has called for a quick reversal and snap elections. Concerns about central bank credibility took another blow on Nov. 30 after a top official was said to have left his post.

Under pressure from Erdoğan, the Central Bank has slashed rates by 400 basis points since September and is widely expected to ease again in December. Real rates are deeply negative at nearly 500 basis points.