Turkish lira crashes to new low as Erdoğan demands lower rates referencing Islamic teachings

The Turkish fell past 18 against the dollar on Dec. 20 as President Recep Tayyip Erdogan vowed to continue with interest-rate cuts referencing Islamic teachings. "As a Muslim, I will continue to do what is necessary as required by nas," Erdoğan said on Dec. 19.

Monday December 20 2021 12:16 pm

Reuters / Duvar English

President Recep Tayyip Erdoğan said he had lowered Turkey's inflation to around 4% before and that he will achieve that again, as it topped 21% following a push for aggressive cuts in interest rates that he has engineered.

Erdoğan has said that policy, which has sent the country's lira crashing, was part of a successful "economic independence war".

He says it will boost exports, employment, investments and growth, but most economists call it reckless and predict inflation will soar beyond 30% next year.

The lira hit a record low beyond 18 against the dollar on Dec. 20. Hit by fears of an inflationary spiral, the currency has lost 55% of its value this year and 37% in the last 30 days.

In a meeting with African youth that was broadcast on Dec. 19, Erdoğan reiterated his unorthodox view that interest rates cause prices rises, adding that inflation would hopefully fall soon.

"Sooner or later, just as we lowered inflation all the way to 4% when I came to power, we will lower it again. But, I will not let my citizens, my people, be crushed under interest rates," Erdoğan said.

"Do not expect anything else from me. As a Muslim, I will continue to do what is necessary as required by nas," Erdoğan said, in reference to Islamic teachings.

Benden başka bir şey beklemeyin. Bir Müslüman olarak naslar neyi gerektiriyorsa onu yapmaya devam edeceğim. Hüküm bu.

Annual inflation fell to around 4% in 2011, when Erdoğan was prime minister. It has been edging upwards since 2017 and in November jumped 3.5% on the month and 21.3% on the year.

Many Turks have said a 50% hike in the minimum wage announced by Erdoğan last week - and widely expected to boost consumer price inflation by 3.5 to 10 percentage points - will be insufficient.

Erdoğan said Turkey's problems were due to "unreasonable attacks" on the economy and dismissed calls for capital controls as "ridiculous."

"The limited rate cuts we have done cannot be the cause of this picture," he said.

Exchanges rates were the "weapon of the game being played on Turkey", and once they and prices were stabilised, "we will see the doors of a much bigger, modern Turkey open to us within months."

Under pressure from Erdoğan, the central bank has cut rates by 500 basis points since September. He says the model will boost exports, employment, investments and growth.

On Dec. 19, Turkey's largest business group TÜSİAD called on the government to abandon the low rates policy and return to "rules of economic science".

Opposition parties want immediate elections but Erdoğan, in power for 20 years, has dismissed this call. National elections are scheduled for mid-2023.

On Dec. 19, he called TÜSİAD's statement an attack on the government.

"Our government's economic policy is advancing exactly as we determined, apart from temporary volatility in exchange rates," he said. "I call on all my citizens to stand with their state and government more strongly over the economy."

Thousands protested in Istanbul and the southeastern city of Diyarbakır at the weekend over the surging cost of living.

Some ferry lines operating from and in Istanbul were halted on Dec. 19 over unsustainable costs stemming from the lira crash, operators said.