Inflation and the cost-of-living crisis dominates the agenda in Turkey, ahead of local elections at the end of March. Year-on-year inflation reached 67 per cent in February, according to the Turkish Statistical Institute, breaking a 15-month record and puncturing hopes that high interest rates would put a lid on rapidly increasing prices.

For years, president Recep Tayyip Erdogan was a bitter opponent of high interest rates. ‘Interest rates are the reasons, inflation is the result,’ he roared regularly at political rallies, defying traditional economists. He cites Islamic traditions whereby high interest rates amount to usury, to justify his unorthodox monetary policies.

Erdogan was a bitter opponent of high interest rates

‘Erdogan really seemed to believe in this baseless thesis personally,’ says Hayri Kozanoglu, a Turkish economist. ‘But the Islamic rhetoric was also an excuse to keep interest rates low and boost the economy ahead of the general elections in May 2023.’

The Turkish central bank also burned through all of its foreign currency reserves to artificially keep the Turkish lira afloat.

In the presidential election in May 2023, Erdogan won another five years in office, extending an unbroken rule that began in 2002. But in June 2023 he appointed a new financial team headed by Wall Street veteran and conventional economist Mehmet Simsek. The central bank hiked interest rates from 8.5 to 45 per cent within eight months. While investors cheered the new direction, inflation refused to budge. Since the election, the lira has dropped from 25 to 40 against the British pound, and continues to reach record lows almost each day.

With the local elections around the corner, Erdogan embarked on a new spending spree. The monthly minimum wage was raised for the second time in a year, up to 17,000 lira (£420) – a 99 per cent increase from January 2023.

QOSHE - Will Erdogan ever get to grips with Turkey’s sky-high inflation? - Daniel Thorpe
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Will Erdogan ever get to grips with Turkey’s sky-high inflation?

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08.03.2024

Inflation and the cost-of-living crisis dominates the agenda in Turkey, ahead of local elections at the end of March. Year-on-year inflation reached 67 per cent in February, according to the Turkish Statistical Institute, breaking a 15-month record and puncturing hopes that high interest rates would put a lid on rapidly increasing prices.

For years, president Recep Tayyip Erdogan was a bitter opponent of high interest rates. ‘Interest rates are the reasons, inflation........

© The Spectator


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