Turkish Treasury and Finance Minister Nureddin Nebati promised a continuation of policies that prioritize economic growth after this year’s elections, despite warnings that the current policy mix is unsustainable.
(Bloomberg) — Turkish Treasury and Finance Minister Nureddin Nebati promised a continuation of policies that prioritize economic growth after this year’s elections, despite warnings that the current policy mix is unsustainable.
The so-called Turkey Economy Model implemented by President Recep Tayyip Erdogan’s administration prioritizes exports and job creation, but its emphasis on lower interest rates fueled consumer inflation to almost 90% last year.
Turkish policymakers remain committed to strong economic growth and avoided an anti-inflation program that would have increased joblessness, Nebati said in an interview with BloombergHT television on Tuesday.
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“We have solved inflation,” the minister said, citing a strengthening of the lira when adjusted for inflation since the 2021 meltdown in the currency.
Nebati’s pledge to maintain course should Erdogan and his ruling AK Party win the June elections goes against growing calls from economists and businesses to return to a more orthodox policy mix. Turkey’s top business association Tusiad warned last month that high-paced growth is unsustainable without curbing consumer inflation to single digits from its current level of more than 64%. Extremely low interest rates in an environment of fast price increases are also putting financial stability at risk, according to Fitch Ratings.
Lira’s Loss
Officials such as Nebati say lower interest rates will boost investments and production, resulting in a supply surplus that will eventually stabilize consumer prices.
To achieve that, Turkey must lower borrowing costs to single-digit levels, Erdogan has repeatedly said. The Turkish central bank started a cycle of rate cuts last year, bringing the benchmark rate to 9% in November, while blaming inflation at 17 times the official target on high energy prices and a weak currency.
The Turkish lira lost about 30% of its value against the dollar in 2022 despite inflation rates that were much higher. The central bank introduced a level of stability to the currency through unannounced interventions in the currency market and other measures aimed at curbing retail and corporate demand for foreign currencies.
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