People doing shopping at the local market in Istanbul, Turkey on December 5th, 2021. The depreciation of the Turkish lira weakened the purchasing power of citizens.
Erhan Demirtas | NurPhoto via Getty Images
Turkish President Recep Tayyip Erdogan has pledged to bring down his country’s soaring inflation, which hit 36% in December, as the country’s central bank gears up for another rate-setting meeting next week.
Speaking in Parliament on Wednesday, Erdogan said he was protecting the country’s economy from attacks by “foreign financial tools that can disrupt the financial system,” according to a translation by Reuters.
“The swelling inflation is not in line with the realities of our country,” the president added, vowing that recently announced government measures to support the severely weakenedwould soon tame “unjust” price hikes.
Economists commenting on the news were not impressed.
“More complete and utter rubbish from Erdogan,” Timothy Ash, emerging markets strategist at Bluebay Asset Management, wrote in an email note shortly after the speech.
“Foreign institutional investors don’t want to invest in Turkey because of the absolutely crazy monetary policy settings imposed by Erdogan,” he wrote. “There is NO foreign plot.”
lost 44% of its value in 2021, due in large part to a refusal by the president — who essentially controls the levers of the Turkish central bank — to raise interest rates to rein in inflation. And Turks themselves are looking beyond the lira as they lose hope in their own currency: , and Turks are like and .
“If RTE [Recep Tayyip Erdogan] wants to save the lira, and maybe his own skin, he should adopt a USD-based currency board,” Steve Hanke, an economist at Johns Hopkins University, wrote on Twitter on Wednesday, saying Turkey is “spontaneously dollarizing.”
His tweet featured an article by Israeli daily Haaretz entitled “Even the Turkish Lira stopped believing in Erdogan.”
before the government announced its rescue plan. The intervention has managed to bring the currency back to just under 14 to the dollar and keep stable there for the past week, though that’s a dramatic fall from its level of 7 to the dollar just one year ago.
The picture isn’t entirely bleak: Turkey showed positive figures for industrial production and retail sales in November, which “suggested that Turkey’s economy held up well during the early part of the currency crisis,” wrote Jason Tuvey, senior emerging markets economist at Capital Economics.
“But we doubt that this strength will last for much longer as the more pernicious effects created by very large falls in the lira in December filter through,” Tuvey added.
“While export sectors may hold up well, consumer-led ones will suffer amid a surge in inflation, which hit 36.1% y/y in December and is set to rise further.”