Turkey says it will continue to cut interest rates despite rising inflation, mocks sterling

By Enyichukwu Enemanna

Turkish President Recep Tayyip Erdogan has said that despite inflation surging to over 80%, the central bank will continue to cut interest rates, saying he expects the country’s key rate, currently 12%, will reach single digits by the end of this year.

Erdogan, who spoke to CNN on Wednesday, also took time to throw some jabs at the UK, saying the pound had “exploded”.

Britain’s currency recently hit a historic low against the US dollar at nearly $1.03 as the new Conservative government led by Prime Minister Liz Truss presented an economic plan based on borrowing and tax cuts despite rising inflation, which rattled the markets.

This has prompted alarmed reactions from US economists, policymakers and the International Monetary Fund, with some saying the UK is behaving like an emerging market.

Turkey’s official currency, the pound, meanwhile hit a record high of 18.549 against the dollar on Thursday. The currency has lost around 28% of its value against the dollar this year and 80% over the past 5 years as markets shied away from Erdogan’s unorthodox monetary policy of cutting interest rates despite high inflation .

“Oh the irony, Erdogan is giving advice to Truss on the economy,” Timothy Ash, emerging markets strategist at BlueBay Asset Management, said in an emailed note.

“Turkey has 80% inflation and I guess the worst performing currency in the last decade. Mdr. How low the UK has gone.

Erdogan doubled down on his controversial monetary plan on Thursday, saying he had told central bank policymakers to keep cutting rates at his next meeting in October.

“My biggest battle is against interests. My biggest enemy is interest. We lowered the interest rate to 12%. Is it sufficient? It’s not enough. It must go further,” Erdogan said at an event, according to a Reuters translation.

“We have discussed, are discussing this with our central bank. I suggested that this be explored further in future meetings of the monetary policy committee,” he added. Turkey’s central bank has shocked markets with two consecutive 100 basis point cuts in the past two months, as many other major economies seek to tighten policy.

The lira is expected to decline further as Turkey favors growth over fighting inflation, which is at its highest level in 24 years. In addition to the skyrocketing cost of living this has caused for Turkey’s population of 84 million, the country is burning through its foreign exchange reserves and has a growing current account deficit.