Turkey’s inflation rate soars in currency crisis

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Turkey’s annual inflation rate jumped above 20% – its highest level in three years – on Friday, despite the main opposition leader accusing officials of hiding the true extent of the country’s currency crisis. country.

The £ 84million nation has seen the value of the lira plummet and consumer prices soar as President Recep Tayyip Erdogan implements risky strategy to revive his declining approval numbers ahead of scheduled elections by 2023.

The powerful Turkish leader – a long-time opponent of high interest rates – has installed central bank loyalists who share his unorthodox view that high borrowing costs cause inflation, rather than slow it.

The bank has lowered its benchmark interest rate by four percentage points since September in a bid to boost lending and export-led growth.

Most of the world’s central banks are considering raising rates to stave off a worrying wave of inflation caused by factors linked to the coronavirus pandemic.

The price of Erdogan’s bet became more apparent on Friday when Turkey’s national statistics agency released monthly data showing annual inflation reaching 21.31%, more than four times the government’s target .

The numbers and a downward revision of Turkey’s outlook by rating agency Fitch pushed the lira back to all-time lows.

The Turkish currency has lost over 45% of its value against the dollar since the start of the year.

But opposition leader Kemal Kilicdaroglu accused the national statistics agency of “fabricating” the numbers to hide the real impact of government policies on daily life.

“We have come here today to get some healthy data,” he told a swarm of reporters as he tried to enter the statistics agency’s main office in the capital Ankara for an update. meeting with its managers.

He was turned back by security agents.

“It is no longer a state institution but a palace institution,” he said, referring to the Erdogan presidential complex.

– Worse than in 2018 –

Some economists are also starting to question the reliability of Turkey’s official data.

Figures released on Friday show that consumer prices last month rose 3.5% from those recorded in October.

The lira has lost about 30% against the dollar over the same period.

“So 30% depreciation of the pound during the month and only 3.5% price increase? That doesn’t make sense in my mind,” commented emerging markets economist Timothy Ash of BlueBay Asset Management. in a note.

“I have serious doubts about the accuracy of the inflation series now. I trusted (the statistics agency) until now. Sad if not anymore.”

Turkey’s currency crisis is now more acute than the one it experienced during a diplomatic standoff with then-US President Donald Trump in 2018.

The central bank reacted at this point by sharply increasing borrowing costs.

But analysts believe Erdogan is more determined this time around to keep rates low to push the annual growth rate above 10 percent – a target he regularly mentions at various political rallies.

– ‘Negative’ perspective –

Most economists believe this policy is unsustainable and warn of the dangers of a run on the banks if Turkish confidence in the government deteriorates further.

Fitch Ratings cited a “deterioration in domestic confidence, reflected by a sharp depreciation of the Turkish lira” as it lowered the outlook for Turkey’s sovereign rating to “negative”.

“We expect inflation to reach 25% by the end of 2021,” the rating agency said.

Turkey has been the darling of foreign investors throughout the first decade of Erdogan’s 19-year rule.

The economy grew at historic rates and Erdogan enjoyed a broad wave of support.

But investors began to lose confidence after Erdogan’s policies became more erratic and his crackdown on political opponents following a failed coup attempt in 2016 became more severe.

The Council of Europe, the continent’s highest human rights body, said on Friday it would launch criminal proceedings against Turkey for refusing to release a prominent activist who has been in prison without a conviction since four years.

raz-fo / zak / rl