by Jörg Billlina, Euro on Sunday
Recently, Turkish President Recep Tayyip Erdogan fired the head of the TÜIK (Turkiye Istatistic Kurum) statistics institute, Sait Erdal Dincer, after only ten months in office. He appointed Erhan Cetinkaya as the new chairman.
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But even the previous deputy of the banking regulatory authority will not be able to provide better data any time soon. On the contrary: On February 3, TÜIK published the inflation rate for January: Consumer prices rose by a shocking 48.7 percent year-on-year. However, independent experts assume that the real loss of purchasing power will be even greater. The EnaGroup, for example, calculated an inflation rate of 83 percent for December compared to the same month last year. An improvement in the situation is not in sight. Unless the Turkish central bank increases interest rates. That would also stabilize the Turkish lira (TRY). The currency lost over 40 percent against the dollar and the euro last year.
But rate hikes are unlikely. Erdogan vehemently rejects this with reference to the Koran. In his view, the country’s economic situation is by no means so negative. In addition, contrary to economic doctrine, he believes that high interest rates are the actual cause of currency devaluation. Central bank governors who disagree must resign. Since 2019, Erdogan has forced three monetary authorities to resign. The current head of the central bank, Sahap Kavcioglu, acts in Erdogan’s interests. Since September, he has cut interest rates by 500 basis points to 14 percent.
State Compensation
Meanwhile, Erdogan is trying to calm the population suffering from the price pressure. Inflation is only temporary, price pressure will ease as a result of further interest rate cuts, and the currency will stabilize again. In order to support the recovery of the Turkish lira, he had previously urged the population to exchange dollar and gold holdings for lira. He also announced state compensation if currency losses were higher than the interest rates promised by banks.
The currency decline was stopped for the time being, but a sustained increase against the euro or dollar is rather unlikely.
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