Turkey hits highest inflation in years

Turkish annual inflation has jumped to a two-year high of 17.53 percent in June, rising after a brief dip and potentially delaying Erdogan's interest rate cut policies.

Erdogan, who has called himself the “enemy” of interest rates, has in recent weeks renewed his call for the central bank to cut the cost of finance, saying he expects a reduction in July or August. 

He sacked the previous central bank governor in March after he increased rates by two percentage points; that unnerved investors and the lira has since fallen more than 15 per cent.

Turkish economy is in a state of weakness and it is difficult to get a decrease in interest with it at the present time. There is a deterioration in the indicators of the Turkish economy, a rise in inflation rates to 17.5% last June, a decline in tourism and weak foreign flows, member of the Egyptian Association of Businessmen, Ahmed El-Zayat, said.

Al-Zayat stated that Turkish President Recep Tayyip Erdogan dismissed the central bank governor 3 months ago because he did not respond to interest rate cut policies. Nevertheless, the appointment of a new governor did not change anything and did not adopt the policies required to reduce interest rates.

Al-Zayat expected that if the inflation rate increases to more than 20%, the central bank will have to review interest rates and raise them to the levels they were two years ago. It is likely that interest rates will soon be raised by 2%.

He explained that interest rates two years ago were in the range of 24%, and after the intervention of the Turkish President and his demand to cut interest, interest rates fell significantly within 10 months.

The central bank was forced to reduce interest and the state spent 169 billion dollars to support the lira against the dollar… However, the economic conditions are difficult and we can see the lira drop to 9 against the dollar soon, he added.

Turkey’s economic recovery from the impact of the pandemic has failed to dent unemployment, which remains high at 14 per cent. 

Voters’ unhappiness with the economy has triggered a record decline in support for Erdogan’s ruling party. Politically, Erdogan is in quite a lot of trouble, as opinion polls suggest his popularity is waning.