Experts have repeatedly warned that unconventional monetary policy will increase inflation and eat up the purchasing power and savings of Turks.
Turkey president Recep Tayyip Erdoğan has on several occasions expressed its opposition to high interest rates. For example, in 2018, he announced that he sees interest as a “tool of exploitation”.
The president’s belief is believed to be due in part to his conservative religious background. Erdoğan reportedly considers high interest rates to be contrary to the teachings of Islam.
The president and his advisers want to keep interest rates low, as they believe this will boost economic growth, create jobs and reduce inflation.
The leadership of the weaker currency, Turkey, in turn, believes it will attract foreign investment to the country. The Turkish central bank – which has become increasingly under the control of the president in recent years – has therefore responded to the depreciation of the Turkish lira by lowering its key interest rate.
Erdoğan’s views are in stark contrast to the general view of economics. Indeed, international experts are repeatedly warned unconventional monetary policy, on the contrary, increases inflation and eats Turkish purchasing power and savings.
Economists have also pointed out that a weak lira alone will not be enough to attract investment if, at the same time, government policy is seen as unpredictable and power is increasingly concentrated in the hands of one man.
“Turkey’s currency crisis is one of Erdoğan’s achievements,” headline for example, the esteemed financial newspaper Financial Times in its editorial on the situation in Turkey in late November.
“Currency problems almost exclusively reflect a man [Erdoğanin] increasingly volatile decision-making and his control over Turkey’s seemingly independent central bank, ”the article said.
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