Turkey’s inflation nears 60 per cent
- 04 Sep 2023
Turkey’s annual inflation approached 60 per cent last month, official data showed Monday, putting pressure on the central bank to further hike interest rates at the risk of angering President Recep Tayyip Erdogan.
The state statistic agency said prices rose by 58.9 per cent over 12 months ending in August compared to 47.8 per cent in July. The latests data will test the limits of how much leeway Erdogan’s new market-friendly team has to raise borrowing costs.
“Pretty awful inflation prints,” emerging markets economist Timothy Ash remarked in emailed comments.
“This will heap pressure on the (central bank) to further significantly hike policy rates from 25 per cent at present.” The Turkish leader has been a lifelong opponent of high interest rates due to his unorthodox conviction that they cause -- rather than help cure -- inflation.
His decision to push policymakers to slash rates in the face of rising consumer prices saw inflation soar to 85 per cent last year.
The economic crisis nearly cost Erdogan his re-election in May.
He won after showering his supporters with massive pay increases and introducing an early retirement programme that cost the government billions of dollars. Analysts feared that Turkey would enter a systemic crisis unless Erdogan radically changed course after the vote.
‘Risk will remain high’ - He did just that by overhauling his government and tapping a handful of respected Wall Street veterans to top economic posts.
Finance Minister Mehmet Simsek and new central bank chief Hafize Gaye Erkan have begun to carefully dismantle Erdogan’s economic legacy and win over foreign investor trust.
Erkan initially caused consternation by raising the central bank’s policy rate from 8.5 per cent to 17.5 per cent over two months -- far less than analysts had hoped.
