Turkey’s Erdogan says he has already cut inflation to 4%, he can still do it

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Turkish President Tayyip Erdogan addresses the public as he attends a ceremony in Istanbul, Turkey, December 19, 2021. Murat Cetinmuhurdar/Presidential Press Office/Handout via REUTERS

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  • Erdogan reiterates his opposition to high interest rates
  • Is under fire from collapsing currencies and rising costs
  • The president says the problems are not due to the policy of low rates
  • Economists predict inflation above 30% next year

ANKARA, Dec 19 (Reuters) – President Tayyip Erdogan said he had already lowered inflation in Turkey to around 4% and would do so again as it rose above 21% following a aggressive interest rate cut campaign he designed.

Erdogan said the policy, which caused the country’s lira to collapse, was part of a successful “war for economic independence”.

He says it will boost exports, jobs, investment and growth, but most economists call him reckless and predict inflation will top 30% next year.

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The lira hit a record low above 17 against the dollar on Friday. Hit by fears of an inflationary spiral, the currency has lost 55% of its value this year and 37% in the past 30 days.

In a meeting with African youth on Saturday which was broadcast on Sunday, Erdogan reiterated his unorthodox view that interest rates cause prices to rise, adding that inflation should soon come down.

“Sooner or later, just as we lowered inflation to 4% when I came to power, we will lower it again. But I will not let my citizens, my people, be crushed by interest rates,” Erdogan said.

Annual inflation fell to around 4% in 2011, when Erdogan was prime minister. It has been up slightly since 2017 and in November it jumped 3.5% for the month and 21.3% for the year.

Many Turks said a 50% hike in the minimum wage announced by Erdogan on Thursday – and widely expected to push consumer price inflation up by 3.5 to 10 percentage points – would be insufficient.

Speaking on Sunday, Erdogan said Turkey’s problems were due to “unreasonable attacks” on the economy and called calls for capital controls “ridiculous”.

“The limited rate cuts we made cannot be the cause of this picture,” he said.

Exchange rates were “the weapon in the game being played on Turkey”, and once these and prices stabilized, “we will see the doors of a much larger and modern Turkey open to us from here some months”.

EDITING CRITICISM

Under pressure from Erdogan, the central bank has cut rates by 500 basis points since September. He says the model will boost exports, jobs, investment and growth.

On Saturday, Turkey’s largest business group, TUSIAD, called on the government to abandon the low interest rate policy and return to the “rules of economic science”.

Opposition parties want immediate elections but Erdogan, in power for 20 years, has rejected this call. National elections are scheduled for mid-2023. Read more

On Sunday, he called TUSIAD’s statement an attack on the government.

“Our government’s economic policy is progressing exactly as we have determined, with the exception of temporary exchange rate volatility,” he said. “I call on all my citizens to stand more firmly with their state and government on the economy.”

Thousands of people demonstrated this weekend in Istanbul and in the city of Diyarbakir, in the south-east of the country, against the soaring cost of living.

Some ferry lines operating from and to Istanbul were halted on Sunday due to unsustainable costs stemming from the lira crash, operators said.

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Additional reporting by Umit Bektas and Yesim Dikmen in Istanbul and Umit Ozdal in Diyarbakir; Written by Tuvan Gumrukcu; Editing by Andrew Cawthorne and John Stonestreet

Our standards: The Thomson Reuters Trust Principles.

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