Erdoğan says confounded doom-mongers, lower rates won’t hurt lira

President Recep Tayyip Erdoğan said Turkey had shown that lower interest rates would not lead to a slump in the lira or a surge in inflation, confounding what he called doom-mongers who predicted disaster for the economy.

 “Quite the opposite,” Erdoğan said in a televised speech to members of his governing party at the parliament in Ankara on Wednesday. “Every indicator demonstrates that things are getting better.”

Turkey’s central bank has embarked on a series of interest rate cuts to help the government achieve economic growth targets as inflation slowed. Some investors had warned that lowering rates too far and too quickly could pressure the lira and threaten the country’s recovery from a currency crisis that erupted in the summer of 2018.

“We ended 2019 with interest rates of 12 percent after four separate rate cuts,” Erdoğan said. “Rates fell to 11.25 percent in January and now market rates are at between 8 percent and 10 percent.”

The lira traded little changed at 6.01 per dollar on Wednesday. It touched 6.05 per dollar on Friday, the weakest level since May.

Erdoğan said that Turkey’s risk profile, as demonstrated by the country’s credit default swaps (CDS), had also improved.

“They said Turkey would be finished, the lira would slump to 10 per dollar and inflation would exceed 30 percent,” he said. “What happened? Did any of this happen? We have destroyed these disaster scenarios with the steps we have taken.”

The central bank’s benchmark interest rate had stood at 24 percent in July, the month when Erdogan sacked and replaced its governor. Inflation accelerated to 12.2 percent in January from 11.8 percent the previous month and 8.6 percent in October. But the rate has more than halved from 25.2 percent in October 2018, two months after the currency crisis struck. 

Erdoğan said he now expected the government to beat this year’s inflation goal of 8.5 percent and economic activity was on the upswing.

“Car sales in January rose more than 100 percent,” he said. “Every indicator suggests that things are going better.”