Treasury and Finance Minister Nureddin Nebati said Wednesday that Türkiye would stick to its low-interest rates policy, the core of the government’s economic policies it says will be pursued in case of a win in the critical elections this week.
The government has favored lower borrowing costs as part of its economic program unveiled in 2021 to boost exports, production and investment and create new jobs. President Recep Tayyip Erdoğan has insisted that high borrowing costs cause high inflation, rejecting economic thinking that suggests raising interest rates helps curb price increases.
Nebati's remarks came against analysts' expectations that Türkiye would reverse its economic policies following the presidential and parliamentary elections slated for May 14 – seen as the most crucial vote in the centurylong history of the republic.
"Mr. President, who has formed the set of policies, has made a promise to the electorate. And this is in the framework that interest rates should not be increased," Nebati told an interview with private broadcaster Habertürk.
"We will move forward with a structure in accordance with these policies," the minister said from the southern province Mersin, where the ruling Justice and Development Party (AK Party) has nominated him as a candidate for the Parliament.
The government says its program eventually aims to lower inflation by flipping the country’s chronic current account deficit to a surplus.
An easing trend last year saw the Central Bank of the Republic of Türkiye (CBRT) cut its key one-week repo rate by 500 basis points to counter an economic slowdown, before it held it at 9% in December and January. It justified the cuts by saying financial conditions must remain supportive to maintain the growth in industrial production.
The bank further cut the benchmark policy rate by 50 basis points to 8.5% after the catastrophic Feb. 6 earthquakes to support the recovery of the real sector. It said last month that the recovery in the devastated southeastern region has been stronger than expected. It left the key policy unchanged in March and April.
"In line with the Türkiye Economy Model, the expectation of an interest rate increase has almost zeroized," Nebati said. "We are moving in line with fiscal policies and for us, an interest rate hike is out of the question, this is very clear."
Erdoğan has repeatedly said interest rates would continue to fall as long as he is in power and has advocated for lower borrowing costs. He has said the government’s new economic model would yield results in 2023.
A coalition of six Turkish opposition parties has pledged to roll back current economic policies should they win the upcoming vote.
Nebati last week said no one should expect a post-election scenario where the central bank would increase the rates to above or near the current headline inflation, which he dubbed as Türkiye's biggest problem.
The stubborn annual inflation hit a 24-year peak last October but has eased as price increases moderated over the last six months.
"The whole problem here is inflation," said Nebati. "The decline in inflation will continue in the coming period."
According to official data, the consumer price index (CPI) eased to an annual 43.68% in April, a notable regress from 85.51% in October. It fell in December and touched 50.51% by March, with a favorable base effect and a relatively stable Turkish lira.
Curbing price increases has been the top priority for the government ahead of the upcoming vote.
Erdoğan has affirmed that the inflation has been high, yet highlighted that it has decreased significantly in recent months and will continue to do so.
He stressed on Tuesday that citizens would not be allowed to "be crushed" under inflation, as he announced a 45% increase in state workers' wages. He also signaled minimum salary would be hiked as well as of July. It would mark a second increase this year, following a 55% increase in January to TL 8,500 ($434.7)
In addition to wage hikes, the government has sought to safeguard households through various other measures, offering debt relief and boosting pensions for millions. It also put forward energy price cuts for households and industries, in addition to an arrangement allowing early retirement for over 2 million workers.
