Turkey will reduce inflation and exchange rate volatility through low interest rates, President Recep Tayyip Erdoğan said Wednesday.
Speaking to reporters on a return flight from Doha, Erdoğan reiterated his opposition to high borrowing costs, adding that Turkey’s forex reserves were not an issue despite the recent central bank’s market interventions.
The Central Bank of the Republic of Turkey (CBRT) intervened in markets twice last week over “unhealthy price formations,” keeping the Turkish lira below 14 to the United States dollar.
The bank had last month warned it was observing unhealthy price formations that are “unrealistic and completely detached from economic fundamentals."
The high volatility in exchange rates came after the central bank slashed its benchmark policy rate to 15% from 19% since September. The bank signaled that policy easing would likely pause in January after one more rate cut this month.
The lira fell to an all-time low of 14 to the dollar last week after the government defended the low-rate policy, which has been embraced by regulators and the banks’ association.
Erdoğan has repeatedly defended the low-rate economic policy over the last two weeks, saying the new policy direction will boost production, jobs, exports and growth.
He has vowed to fix inflation rapidly and called on citizens not to panic.
“I believe we will reverse these attacks on the currency. As I always say, God willing, this will also pass us by. Let everyone know this,” Erdoğan told reporters.
He also blamed stockpiling for the surge in prices and threatened to impose more severe punishments.
Turkey’s annual inflation accelerated to 21.31% last month, the highest reading since November 2018, up from 19.89% in October, according to official data.
The central bank says the inflation pressure is temporary and necessary to expand credit, exports and economic growth.