Turkey’s President Recep Tayyip Erdogan has promised to continue with his unorthodox policy of cutting interest rates to reduce sky-high inflation if he is re-elected on May 28.
“Please do follow me in the aftermath of the elections, and you will see that inflation will be going down along with interest rates,” he told CNN’s Becky Anderson in an exclusive interview Thursday. Asked whether that meant there would be no change in economic policy, he replied: “Yes. Absolutely.”
Erdogan, who is seeking to extend his 20-year rule, just failed to secure 50% of the votes cast in Turkey’s presidential race last Sunday. The election will go to a runoff vote at the end of the month.
But he performed better than opinion polls predicted, sending Turkish stocks tumbling Monday and pushing the value of the currency to a new record low against the US dollar.
The Turkish lira crashed by more than 40% last year as Erdogan economic policies fueled a jump in inflation. While central bankers across most of the world’s biggest economies have been raising rates at a rapid clip to control surging prices, Turkey has been doing the opposite.
“I have a thesis that interest rates and inflation, they are directly correlated. The lower the interest rates, the lower the inflation will be,” Erdogan told CNN.
“In this country, the inflation rate will come down along with the interest rates, so that we will come to a point where people will be relieved. I say this speaking as an economist. This is not an illusion.”
In late 2021, as price rises started to accelerate around the world, Erdogan ordered Turkey’s central bank to slash interest rates. The annual rate of consumer price inflation hit 85% last October, before slowing to a still-steep 44% in April, according to data from the Turkish Statistical Institute.
“President Erdogan’s unexpectedly strong showing in Turkey’s presidential election on Sunday means that a return to orthodox policymaking looks as far away as ever,” James Reilly, an assistant economist at Capital Economics, said in a note on Monday. “As a consequence, the Turkish lira looks set to remain under serious pressure this year.”
A likely victory for Erdogan on May 28 would lead to a continuation of low interest rates and high inflation, he added.
Runaway price rises are hurting Turkish consumers and the broader economy just as it is struggling to recover from a devastating earthquake in February. The disaster killed at least 45,000 people, left millions homeless and caused immediate damage estimated at $34 billion — or roughly 4% of the country’s annual economic output, according to the World Bank.
“Turkey will need to curb inflation, safeguard financial stability, and put the economy on a path of sustainable growth regardless of the results of the elections,” analysts at JPMorgan noted on Monday, adding that the outlook for the country would depend on the extent to which it shifted back toward the economic mainstream. “If policies are shifted to greater orthodoxy, the disinflation process will be faster.”
Erdogan doubled down on his optimistic message, saying: “We have surmounted challenges in the past, we are strong right now as Turkey.”
He noted that the country’s gross domestic product, or GDP, per capita, which measures national prosperity, had surged from “around $3,600” to $10,650 “right now.” “And this number is bound to reach $15,000 in the next few months,” he added.
Turkey’s GDP per capita stood at $3,641 in 2002, the year before Erdogan became prime minister, and reached $9,661 in 2021, according to the latest World Bank data.