Turkey may lose cash to emerging-market rivals, columnist says

Turkey may lose much-needed funds to other emerging markets as the lira and economic risk indicators under-perform.

The share of cash Turkey receives from investors who buy assets in these economies may decline, wrote Servet Yıldırım, a columnist for the daily Milliyet newspaper, due to the continuing impact of the lira’s losses on inflation.

Turkish President Recep Tayyip Erdoğan’s focus on economic growth and his stance on interest rates is forcing the central bank to compromise on monetary policy, hurting the fight against inflation. Erdogan, already preparing for presidential elections due in 2019, asserts that higher interest rates cause inflation, the opposite of commonly-accepted economic theory.

Yildirim said the problem of inflation in Turkey was becoming more serious, reflected in the central bank’s year-end forecasts, which have been revised upwards three times from 8 percent to an 9.8 percent forecast announced this week.The central bank’s so-called “tight stance” on interest rates has not been sufficient to slow down price increases, he said.

Expectations for future inflation are worsening and it may take some time for the central bank to repair the situation should that trend continue, Yildirm wrote, pointing to high levels of core inflation.

Turkey’s inflation rate accelerated to 11.2 percent in September and core inflation, which strips out energy, food, beverages, tobacco and gold, rose to 10.9 percent, a decade high. The central bank says the rate will gradually decline towards its target of 5 percent, though that goal now seems largely symbolic.

Turkey core inflation rate

The government expects the economy to grow in double figures in the third quarter after it spurred lending to industry via a credit guarantee scheme with banks. Prime Minister Binali Yıldırım said this week that the scheme would continue, without putting a figure on the amount of extra cash the government might make available or how it would finance the extra lending.

Read the full story in Turkish here