Status: December 20, 2021 1:50 p.m.
Turkish President Recep Tayyip Erdogan has spoken again about inflation in his country. The lira, the home currency, then continued to decline – it fell to a new record low against the euro.
After the latest statements by the Turkish President, the national currency is again under severe pressure today. “Inflation will fall as soon as possible – God willing,” said Recep Tayyip Erdogan on Sunday evening. “Sooner or later” the government will lower inflation.
Erdogan referred to the time when he took office; at that time his government had “reduced inflation to four percent and we will reduce it again”. The politician added: “I will not allow my fellow citizens, my people, to be crushed by interest rates.” Erdogan did not mention the current inflation rate of officially 21 percent.
Lira value halved
As a result, the rate of the Turkish lira fell by around six percent today. A low of 19.86 lira had to be paid for one euro – more than ever before. A year ago the rate for one euro was only around 9.30 lira. The Turkish currency has devalued by a good half compared to the common currency.
The country’s dollar bonds also came under pressure. The papers running until 2034 posted the largest price slide in nine months with a minus of almost three percent. At the same time, the yield rose to a year and a half high of 8.115 percent. The rapid decline in the rate of the lira makes interest payments on foreign currency securities more expensive.
The purchasing power of the population is suffering
The bitter Lira losses are making goods imports into Turkey more expensive and are thus putting a strain on the purchasing power of the population. In the meantime, the influential business association Tüsiad has also spoken out in favor of higher interest rates.
Erdogan is a declared opponent of high interest rates, as he sees them not only as a brake on growth, but also as a driver of inflation. The latter stands in contrast to the economic consensus, which sees interest rate hikes as a sharp sword against inflation. Under pressure from Erdogan, the Turkish central bank has lowered the key interest rate several times since September to 14 percent.