Erdogan defends his economic policies as “dangerous but right”

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Turkish President Recep Tayyip Erdogan has once again defended his preference for lowering interest rates despite the sharp deterioration of the national currency and rising inflation.

The Turkish president announced, on Wednesday, that Turkey is taking a “risky but right” path towards the economy.

He told his ruling party’s lawmakers in parliament in Ankara: “What we are doing is the right thing… We have drawn up and are putting together a politically risky but right plan.”

The Central Bank intervened earlier to support the Turkish lira, which lost nearly 30% of its value against the dollar within a month, according to Agence France-Presse.

The Turkish lira fell, during Tuesday’s trading, by 6% against the dollar.

The Turkish president does not agree with the traditional economic measures, considering that high interest rates cause an increase in inflation, and he pledged again to maintain a low basic interest rate, considering that it supports production and exports.

He said, “The world knows how uncomfortable I am with high interest rates… I have never been a supporter of interest, neither today nor tomorrow.”

“We abandoned monetary policies based on high interest rates, and turned to a growth strategy based on investments, employment, production and exports,” Erdogan added.

He stressed, “Our country will not return to the system of exploitation … which is based on high interest rates.”

Under pressure from Erdogan, the central bank has cut interest rates several times since September, despite severe inflation.

The Turkish Central Bank cut interest rates again last November from 16 to 15%, for the third time in less than two months, while the inflation rate reached 20%, which is 4 times higher than the government’s primary goal.

growth at any cost

18 months before the upcoming presidential elections, it seems that Erdogan would prefer economic growth at any cost to reducing the purchasing power of citizens who are beginning to feel the burden of rising prices for some basic products.

The Turkish economy recorded a growth of 7.4% in the third quarter of 2021, according to official figures published on Tuesday.

The European Bank for Reconstruction and Development expected the Turkish economy to grow by 9% in 2021 and 3.5% in 2022.

But experts are concerned about the repercussions of this race towards growth on the value of the Turkish lira, and warn of the erosion of the country’s foreign exchange reserves.

During a previous crisis in 2018, the Turkish Central Bank, according to the opposition, withdrew about 128 billion dollars from its reserves to support the lira. And if the value of the reserve used by the Central Bank on Wednesday remains unknown, observers wonder about the risks of the process.

In a note sent before the central bank’s intervention, on Wednesday morning, economist Timothy Ashe spoke of concern about a possible decision to control capital.

He added, “If people think that capital controls can be imposed, the next stage will be a rush to banks… We have not reached this stage, but with the slightest indication of imposing capital controls, this risk increases.”

swell

The lira has lost more than 43% of its value against the dollar since the beginning of 2021, which has led to a significant increase in the cost of imports on which Turkey depends, especially in the field of energy and raw materials.

Some experts expected that the inflation rate in November 20212 (which will be published next Friday) would reach more than 20%, weakening the purchasing power of many Turks.

Argentina is the only country among the Organization for Economic Cooperation and Development (OECD) countries with a higher inflation rate.

Erdogan apparently played down his concerns about exchange rates, saying: “What you say about the exchange rate appreciation today will decrease tomorrow…inflation rises today and decreases tomorrow.”

He stressed that the government “understands the sincere concerns” about the uncertainty caused by high prices and currency fluctuations, and that it is “closely monitoring” the situation.

“We know what we’re doing, that’s our job,” he said.





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