When it comes to Turkish President Recep Tayyip Erdoğan, monetary policy is hardly conventional. The Every Morning Asia online portal has explained why President Erdoğan’s economic fantasy would not save the Turkish Economy. Currently, the Central Bank of Turkey is expected to decide on the interest rate in a period in which the National Economy is in free fall, and the Turkish population is assaulted by a continuous devaluation of the Turkish Lira, and a 20% inflation rate.
Lately, the institution, responsible for the monetary policy in Turkey, has gone in the opposite direction to other Central Banks in countries that are facing rising inflation by lowering the interest rate.
According to President Erdoğan, the low level of borrowing costs would lead to an increase in consumption, while the low value of the Lira would stimulate exports. Both outcomes are perceived as a healing treatment for an economic growth that is around the corner, contrary to mainstream economic theories which suggest that rising inflation and falling interest rates go hand in hand, with skyrocketing prices discouraging, rather than stimulating consumption. With a low level of demand, Turkey might be closer to classic economic-staged recession, rather than Erdoğan-expected economic growth.
The economic fantasy of the leader in Ankara is based on an emulation of the new Chinese model. President Erdoğan expects Turkish exports to take a considerable share of the Chinese exports to Western markets, based on low level wages.
Another difference between the Central Bank of Turkey and other Central Banks in states, at least as developed as Turkey, is the fact that the Turkish Central Bank is not autonomous. Following the 2017 referendum that gave Erdoğan increased powers under a Presidential System, the President started influencing the country’s Political and Economic trajectory. The Central Bank was no exception, with two governors ousted in less than two years.
Erdoğan expects a decision on lowering the interest rate to increase his popularity before the 2023 General Elections. However, high inflation, queues formed at the purchase of government-subsidised bread and dry gas stations, could bring the President a fall of his own making.
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