Turkey’s President Recep Tayyip Erdogan said “tight monetary policy” was needed to slow inflation, in an apparent change in stance for a leader who’s long frustrated investors by championing ultra-low borrowing costs.
(Bloomberg) — Turkey’s President Recep Tayyip Erdogan said “tight monetary policy” was needed to slow inflation, in an apparent change in stance for a leader who’s long frustrated investors by championing ultra-low borrowing costs.
The lira reversed its losses after Erdogan spoke in Ankara, trading 0.1% stronger at 26.78 per dollar as of 3.10 p.m. local time. It’s still down more than 30% this year.
“We will lower inflation to single digits with the support of monetary tightening,” he said as his government unveiled economic targets for the next three years.
The Turkish president, who won reelection in May to take his rule into a third decade, is known for being a self-proclaimed enemy of high interest rates. He’s removed three central bank governors in recent years for not toeing the line.
He revamped his economic team shortly after his election victory, appointing Mehmet Simsek, a former Merrill Lynch bond strategist, as finance minister and Hafize Gaye Erkan, who used to work at Goldman Sachs Group Ltd., as central bank governor.
Supersized Rate Hike Spurs Massive Rally Across Turkish Markets
While they’ve overseen a sharp raise in rates and an unraveling of state controls over financial markets since June, Erdogan had said his views on monetary policy were unchanged.
“People shouldn’t be under the misconception that the president is moving toward a serious change in interest-rate policies,” he said on June 14. “I’m the same.”
Erdogan’s Fixation
The president’s fixation with a growth-at-all costs strategy and push for low rates triggered a surge in inflation and caused investors to flee the country.
On Wednesday, Erdogan also said his administration would curb consumer demand. Still, he said he won’t “make concessions on economic growth.”
Turkey revised down its economic growth targets in the medium-term program. Gross domestic product for this year will be 4.4%, down from 5% in the previous report, according to a presentation by Vice President Cevdet Yilmaz.
The government now sees growth at 4% in 2024, compared to 5.5% before.
Pessimistic Outlook
Turkey is scheduled to hold local elections in March. The president has for years boosted monetary stimulus ahead of polls and wants to win back the biggest city of Istanbul, now held by the opposition.
The government offered a pessimistic outlook on inflation, sharply revising up its year-end projection to 65%, from 25%.
Year-on-year inflation rate rose faster-than-expected in August, to 58.9%, underscoring the central bank and Erdogan’s challenge in ending a cost-of-living crisis.
Turkish Inflation Nears 60%, Piling Pressure on Central Bank
The central bank amended its year-end inflation forecast to 58% in July, more than doubling it from the figure under Erkan’s predecessor.
Monetary authorities expect price growth to peak in the second quarter of next year and slow to 33% at the end of the year. The 2025 year-end projection is 15%
Those inflation forecasts for the next two years are in line with the government’s.
The current benchmark interest-rate is 25%, after the central bank raised it by 750 basis points — more than expected — in late August. The bank has signaled the tightening cycle will continue.
–With assistance from Asli Kandemir.
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