Turkey, President Tayyip Erdoğan

Erdoğan: ”There is no going back on the low interest policy in Turkey”

Erdoğan, once again, insisted on his strategy for the economy, despite high inflation in Turkey and the plummeting value of the Turkish lira.

The president of Turkey, Tayyip Erdoğan, insisted this Wednesday that “there is no going back” in the low interest policy that his government maintains, and that he assures it will help to get the country out of the spiral of exchange rates, inflation and interest rates. of interest: all this despite the consequences that this policy is triggering for the national currency, the Turkish lira, which continues to plummet in the markets and is already exchanged at a rate of more than 15 lira for every euro.

“We are doing the right thing. We have carried out and are carrying out a politically risky but correct plan,” Erdoğan said during a speech delivered to deputies from his Justice and Development Party (AKP), at the parliament headquarters in Ankara. As explained by the President of the Republic, Turkey is “fighting against the interest rate lobby” and against the “enemies of production and employment.”

“We have abandoned the monetary policy based on high interest rates, and instead we have switched to a growth strategy based on investments, employment, production and exports,” Erdoğan stressed. “Our country will not return to the system of exploitation… based on high interest rates,” he added.

Erdoğan’s war against high interest rates

Erdoğan has been the main advocate of the low interest rate policy by the Turkish Central Bank, which has continued to cut interest rates to stimulate growth in the Turkish economy: this despite inflation hovering around 20%, which would require a tighter monetary policy, according to economy standards; however, in the last two months the Central Bank has cut its one-week reference rate by 400 basis points to 15%, and it is expected that before the end of the year it will apply further cuts.

The Turkish president is in favor of the view that keeping loan interest at high levels hurts economic growth and destroys national production, making structural inflation permanent by increasing production costs, and maintains that it is high interest rates what increase inflation, and not the other way around.

From their government, they argue that although in the short term a price must be paid, the economic stimulus implied by a low-interest monetary policy ends up promoting exports, credit, employment and GDP growth, theoretically ending the primary causes of inflation.

In 2021 alone, the Turkish lira lost more than 30% of its value

The “price” however of this risky bet is having a runaway inflation, and a Turkish lira that has lost more than 30% of its value this year alone, and which is currently trading at a rate of more than 15 lira for each euro, when only 5 years ago (in 2016) a Turkish lira was exchanged for just over 6 euros.

Despite this, Erdoğan insisted today before his party that “there is no turning back”, assuring that “our country is now at a point where it can get out of this spiral.” “Just as we have not backtracked on any of the paths we have taken so far, God willing, we will not return from this path,” the Turkish leader emphasised again.

Referring to the concerns of the Turkish public opinion about the volatility of the lira in the markets, Erdoğan understood them but insisted that “the world knows how uncomfortable I feel with high interest rates. I have never been a supporter of high interests: I am not today, and I will not be tomorrow.” Regarding the problems that the Turkish lira is going through, the president said that the exchange rate of the Turkish currency does not fall due to problems in the Turkish economy, and assured that the fall in the markets of the lira is temporary.

“The so-called exchange rates (of currencies) rise today, and fall tomorrow. Inflation rises today, and falls tomorrow,” Erdoğan said, insisting again and again that there will be no going back from the low-interest policy in Turkey. Despite this, shortly before his speech, the Turkish Central Bank was forced to intervene in the markets by selling part of its reserves in foreign currencies – something it had not done since 2014 – to support the Turkish lira, in the face of the collapse of its exchange rate against the dollar and the euro.