Recep Tayyip Erdogan (67) has a big money problem: Inflation is rampant, the national currency is falling from one record low to the next. Result: Voter frustration mounts, investors run away.
But the Turkish President continued to add fuel to the fire!
On Thursday evening: Interest rate decision by the Turkish central bank. For the third time in a row, it did the opposite which would ease the position, and cut the main rate – again!
Currency Markets Reaction – Panic!
The lira immediately fell by six percent against the dollar, and for the first time more than eleven Turkish lira (top: 11.23) had to be paid for a dollar! The currency has thus lost 30 percent of its value since the beginning of the year. One euro also costs up to 12.80 lira.
Because with the interest rate hike, the lira will continue to sell. The new reference interest rate of 15 percent (minus one percentage point) still sounds like a lot – but with an inflation rate of only 20 percent (October), it’s net devaluation. So the “true” interest rate (the real interest rate) is a nice minus five percent.
Erdogan furious over “interest plague”
Bitter to many losses from Erdogan’s insane monetary policy. With imports becoming even more expensive, Turkish consumers have to see how they can buy less and less with their money, and savers watch their wealth shrink.
But the trigger of this crisis – Erdogan – is standing on his way. The Turkish president has repeatedly raised his voice against interest rates, justifying the disapproval with his Islamist (and anti-Semitic) worldview. Likewise on Wednesday.
In Erdo-mad words: “We will remove the interest rate plague from the shoulders of our people”, Erdogan rebuked the faction of his ruling party, the AKP. “We certainly won’t let interest rates bring our people to their knees,” he said. “As long as I am in this position, I will continue my fight against interest rates until the very end.”
The Bosporus boss does not want to accept the consensus of all economists that raising interest rates is the way to fight inflation. On the contrary: “Interest is the cause, inflation is the result,” he claimed – contrary to all laws of economics.
“I’m sorry for the proponents of high interest rates, but I can’t work with them,” Erdogan continued. He has proved it several times before: since 2019, he has already taken the place of central bank governor three times – until he finds someone who is obedient to him.
Erdogan also complained that investors – as a logical consequence of his monetary policy – were running away. “What kind of people are you?” He got angry.
