May 08 2018

Erdoğan adviser: Lira is free-floating, interest is the enemy

High interest rates are the enemy of Turkey’s economy and the lira should be allowed to float freely, said Cemil Ertem, senior economic adviser to President Recep Tayyip Erdoğan.

Appearing to rule out rate increases, Ertem, in a column for the Milliyet newspaper, said "economic policy based on high interest rates opens the way to inflation and a current account deficit,.. Because high interest rates do not price anything in terms of market rates, starting with the currency.

“Starting with the local currency, nothing is then competitive and our manufacturers cannot be competitive…

“Our basic economic approach is to be completely open to the world, with a free-floating currency, and to allow unlimited freedom for capital inflows and outflows,” Ertem said.

Turkey’s lira sank to a fresh record low of 4.3 to the dollar on Tuesday after Erdoğan accused unspecified investors of launching an attack on the currency. The plot will be foiled with a project the government had prepared, he said, without providing further details of the plans.

Economists are calling on the central bank to increase interest rates to arrest a slide in the currency that has exceeded 10 percent this year.

Opposition politicians, who face Erdoğan and his party in presidential and parliamentary elections on June 24, don't understand how Erdoğan will reduce inflation, interest rates and the current account deficit, because they have been advocates of International Monetary Fund policies since 1947, Ertem said.