Erdogan sticks to his guns on inflation as lira tumbles

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2021-12-01T10:42:00+05:00 AFP

Turkish President Recep Tayyip Erdogan has again rejected the idea of raising interest rates to shore up the nation's currency, which has slumped more than 40 percent this year.

Flying in the face of almost universal economic theory, Erdogan believes higher interest rates only attract speculative hot money and that the real economy is best supported by low borrowing costs.

"With the new economic model, we reject out of hand the policy of attracting hot money with high interest rates," Erdogan said in an interview on state TV. 

"We will support production and exports with lower rates."

The Turkish lira hit a record low, losing nearly six percent of its value against the dollar and the euro on Tuesday. 

The currency was also hit by local media reports that the head of the central bank's markets department had been removed, as well as signs that the US Federal Reserve would raise its rates sooner than expected.

The Turkish lira continued to slide during Erdogan's interview.

The currency lost 13 percent of its value against the dollar last week, largely due to two rate cuts pushed for by the president.

The officially independent Turkish Central Bank lowered its key rate in November by one percentage point to 15 percent, the third cut in less than two months.

Experts believe November's inflation rate, which is to be announced on Friday, could be above 20 percent -- four times higher than the government's initial target. 

The next official inflation announcement is due on Friday.

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