Turkey’s official inflation rate climbed to a new 24-year high last month as the country reeled from President Recep Tayyip Erdoğan’s unorthodox economic policy.
The consumer price index rose 83.45 per cent in September, according to data from the Turkish Statistical Institute, the highest level since July 1998 and up from 80.21 per cent the previous month.
Erdoğan rejects the established economic consensus that raising interest rates helps to curb inflation.
He has ordered the central bank to cut borrowing costs twice in the past two months, bringing the benchmark interest rate down to 12 per cent.
Last week he said he wanted the main rate to come down to single digits by the end of the year as he pushes for growth ahead of critical elections that are due to take place in June 2023.
“My biggest battle is against interest. My biggest enemy is interest,” Erdoğan said in televised remarks. “We have now lowered the interest rate to 12 per cent. Is that enough? It is not enough. This needs to come down further.”
Erdoğan has insisted that lowering rates — even at a time when other central banks around the world have been raising borrowing costs — will strengthen the lira and tackle inflation by boosting investment and creating jobs.
Analysts, however, warn that the easing cycle is one of the main causes of the heavy pressure on the Turkish currency, which is down by about 27 per cent against the dollar since the start of this year. It has also caused rampant inflation and raised concerns about the stability of an economy that is heavily dependent on foreign funding, with $182bn in external debt payments coming due in the next 12 months.
On Friday, the rating agency S&P downgraded the rating on Turkey’s government debt from B plus to B on account of what it called the country’s “heterodox” economics.
S&P that “loose monetary and fiscal policy settings, and low net foreign currency reserve levels” underscored the vulnerability of the lira, with risks to financial stability and the health of the public finances.
It warned that the risks would likely increase in the run-up to next year’s parliamentary and presidential elections, which are set to be the most difficult campaign Erdoğan has faced in his almost 20 years at the nation’s helm.
The president has already indicated that he will try to offset the pain that inflation is inflicting on Turkish households with a barrage of voter giveaways and steps aimed at boosting growth.
While the September data represent the worst level of price rises that Turkey has seen since Erdoğan’s ruling party came to power 20 years ago, opposition parties and some independent analysts say the real inflation rate is even higher. They accuse the Turkish Statistical Institute of manipulating the data.
A separate index that measures inflation in Istanbul, compiled by the city’s chamber of commerce, showed that prices rose 107 per cent year on year in Turkey’s largest city last month.