Turkey’s annual inflation rate has risen to a 19-year high, highlighting the country’s financial woes and raising concerns about the president’s policies.
The cost of transportation, food, and other essentials ate into household budgets in December, pushing prices up by more than 36%.
Most central banks have raised interest rates to combat inflation, but Turkey has taken the opposite approach.
As a result, the value of the lira has plummeted, as Tayyip Erdogan prioritizes exports over monetary stability.
Last year, the lira lost 44% of its value versus the dollar, and it plunged another 5% on Monday before rebounding to trade flat.
Inflation-fueling imports, such as energy and many of the raw commodities Turkey’s factories transform into exports, have become more expensive as the lira has fallen in value.
Mr Erdogan has referred to interest rates as “the mother and father of all evils,” and has taken more unconventional measures to attempt to keep costs down, like as meddling in foreign currency markets.
He claimed Turkey was “going through an economic change and advancing to the next league” in a speech on Monday.
He said that the country is “reaping the rewards of our country’s efforts and hard work in the last 20 years to enhance our international commerce, particularly in exports.”
According to one expert, unless monetary policy is altered, inflation might reach 50% by the spring.
“Rates should be raised aggressively and soon since this is an emergency,” said Ozlem Derici Sengul, founder of Spinn Consulting in Istanbul. However, she acknowledged that the central bank was unlikely to intervene.
Last year, Mr Erdogan changed the leadership of the central bank. Since September, the bank has cut rates from 19 percent to 14 percent.
The lira’s subsequent depreciation has thrown family and corporate budgets into disarray.
Last month, images emerged of people in Istanbul queuing for subsidized bread, despite municipal officials claiming that the cost of living had increased by 50% in a year.
The cost of living is anticipated to climb much more, especially following recent increases of roughly 50% and 25% in the price of electricity and gas, respectively.
The central bank has claimed that prices are being driven by transitory reasons, and predicted that it would conclude the year at 18.4% in October. Although the bank’s official inflation objective is 5%, the rate has been in double digits for the previous two years.
To combat the lira’s depreciation, Mr Erdogan announced three weeks ago a system in which the government will safeguard converted local savings against losses in hard currency. With the help of the central bank, the lira soared 50 percent.
The currency then fell again last week, causing the president to issue a plea on Friday for citizens to keep all of their money in lira and move their gold into banks.
President Erdogan’s popularity has plummeted as a result of the economic upheaval, ahead of expected elections in mid-2023.