Turkey’s economic downturn has hit hard for more than two years

Rising prices in Turkey culminated in more than two years the escalation of the epidemic last month also boosted consumer spending, prompting the central bank to meet President Recep Tayyip Erdogan’s demand for lower interest rates.

Customer prices rose by 17.5% in June each year – the highest interest rate since May 2019 and more than 16% of forecasts for experts interviewed by Bloomberg. Household goods, food and drink and hospitality all drive up prices, government figures show.

Erdogan, who called himself the “enemy” of interest rates, in recent weeks has reiterated his call for the central bank to cut inflation, saying he expects a reduction in July or August. He fired the central bank governor in March after raising prices by two percent; unsecured investors with the lira have now fallen by more than 15 percent.

The new governor, Sahap Kavcioglu, who also has Erdogan’s view that higher prices drive inflation, has tried to address the concerns of potential investors in order to reduce inflation. He pledged to keep the Turkish show afloat despite rising prices, and has done 19% in the last three meetings. The finance committee is due to meet again next week.

“In a good country, with a bank that wants to lower inflation, it could be raising interest rates. But this is the largest bank in Turkey, with political power that is most affected by policy-making, “said Jason Tuvey, a budding economist at Capital Economics.

Erdogan wants a lower interest rate to boost interest rates for economic growth, which increased 7% annually in the first quarter of 2021.

However, the Turkish economic recovery from the epidemic has failed to produce unemployment, which is still 14%. Voter unhappiness with the economy has led to a decline in party support for Erdogan’s ruling party.

“Politics is in a lot of trouble, because research shows that its popularity is declining. They can see a stimulus that is growing rapidly and creating more jobs. But Turkey already has one of the fastest recipients from [coronavirus] difficult, ”Tuvey said.

The number of cases of coronavirus in Turkey has dropped to about 4,400 a day and has raised the bar slightly and allowed restaurants and other businesses to reopen once the vaccine has been introduced.

Analysts expect Kavcioglu to struggle to cut interest rates in the coming months as inflation is not expected to cool down, among other things, as the government raises prices for electricity and gas this month.

“July [prices] it seems to be very high, given the rise in electricity prices announced last week. All of this makes predicting a major bank of 12.2% inflation at the end of the year seems promising, “Timothy Ash, an expert at BlueBay Asset Management, wrote in a customer letter.