In the end it all went according to script. The one “suggested” by the Presidency of the Republic. The Turkish central bank has approved a new cut in interest rates, equal to 200 basis points, bringing the reference rate from 18 to 16 percent.
This is the second cut in less than a month (in September it had gone from 19% to 18%). The decision was immediately reflected in the Turkish currency. The lira, which has lost almost 20% since the beginning of the year, yesterday suffered a new decline (-2%), hitting a new all-time low at 9.49 lire per US dollar.
Erdogan’s strategy
Turkish President Recep Tayyip Erdogan is therefore determined to go his own way. That is, that of growth at all costs, and by all means. On its side, it has a consistent rebound in GDP, which in 2021 is expected to record a vigorous increase of 9 percent. The weak lira, aided by the recovery in post-pandemic international demand, nevertheless allowed it to significantly increase exports.
For years now, Erdogan, while wanting to fight inflation, has taken sides against the high interest rates which he himself defines as “the mother and father of all evils”. The problem is that the side effects of this unconventional economic policy have been making themselves felt for some time. Runaway inflation and the devaluation of the lira have in fact proved to be an extremely negative combination for Turkish families, whose purchasing power has been mutilated.
Although inflation already exceeded interest rates in September, the Central Bank therefore followed the instructions of the president. On the other hand, after having changed 4 governors in less than two years, on 14 October Erdogan removed from office the deputy governors Semih Tumen and Ugur Namik Kucuk and another member of the body, Abdullah.
National emergency inflation
Inflation remains the national emergency, the number one enemy of the recovery. According to the Turkish statistical office, in September it grew at an annual rate of 19.58 percent (+ 1.25% on the previous month). But these are the official estimates. According to the calculations of the independent inflation group (ENAG), created recently by a handful of Turkish academics, the cost of living has already reached 40 percent. An unsustainable level.