Turkey’s official inflation rate soared to nearly 70% in April, data showed on Thursday, posing a huge challenge to President Recep Tayyip Erdogan, whose unconventional economic policies are often blamed for economic turmoil.
The consumer price index rose 69.97 percent year-on-year in April from 61.14 percent in March, the national statistics agency said.
Erdogan insists that deep cuts in interest rates are needed to bring down soaring consumer prices, running counter to economic orthodoxy.
The collapse of the pound has pushed up the cost of energy imports and foreign investors are now turning away from the once promising emerging market.
Russia’s brutal invasion of Ukraine and the coronavirus pandemic have exacerbated energy price spikes and production bottlenecks.
Turkey’s annual inflation rate, the highest since Erdogan’s ruling AK party came to power in 2002, is largely tied to its unconventional economic thinking, analysts say.
Erdogan pressured the nominally independent central bank to start cutting interest rates.
In April, the bank kept its benchmark interest rate unchanged for the fourth consecutive month, bowing to pressure despite high inflation.
The largest price increases in April were in the transport sector, with 105.9%, while prices for food and non-alcoholic beverages jumped 89.1%.
“It’s true that it’s about rising food and energy prices, but also about the dramatic failure of monetary policy in Turkey,” said Timothy Ash, emerging markets strategist at BlueBay Asset Management, in a note to clients.
“Low interest rates cause inflation. Period. Fact. Reality,” he said, accusing Erdogan of “trying to rewrite economics to say otherwise, which is the equivalent in economics of calling the flat Earth”.
Treasury and Finance Minister Nureddin Nebati brushed aside concerns on Monday, saying the current inflationary trend was temporary and “won’t spread in the long run and won’t be permanent.”
“We will increase the well-being and purchasing power of our citizens compared to past levels,” he said.
Turkey has reduced taxes on some goods and offered subsidies for some electricity bills for vulnerable households, but even that has failed to stem inflation.
The Turkish currency lost 44% of its value against the dollar last year and more than 11% since the beginning of January.
Erdogan’s government responded by using state banks to buy liras in a bid to reduce currency losses.
There is also speculation that the central bank is selling dollars to stem the fall of the lira.
Former deputy general manager of Turkey’s state bank Ziraat shared information he received from banking circles, Turkish media reported.
“The central bank sells $2.53 billion a week through state-owned banks,” he reportedly said this week.
From the Saudi perspective, the restoration of relations with Turkey is also in line with recent steps taken by Riyadh to respond to changes in regional dynamics and the challenges arising therefrom. https://t.co/cVkR9rrLE0
The New Arab (@The_NewArab) May 5, 2022
Jason Tuvey, emerging markets economist at London-based Capital Economics, predicted inflation would hover around current high rates for much of this year.
He said there were “no signs that policymakers are about to change course and raise interest rates as they remain committed to the ‘new economic model'”.
Erdogan, who faces a crucial presidential vote next year, has also shifted policy to mend broken alliances with cash-rich Gulf states to secure financial backing.
Last week he traveled to Saudi Arabia in a bid to restore ties since the 2018 murder of Riyadh critic journalist Jamal Khashoggi at the kingdom’s consulate in Istanbul.
Erdogan said his government agreed with Saudi Arabia to “reactivate great economic potential”.
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