Turkey’s Erdogan Stands by Opposition to High Interest Rates

August 12, 2018 Updated: August 12, 2018    

ISTANBUL—Turkish President Recep Tayyip Erdogan says he stands by his opposition to high interest rates, amid sharp declines in the value of the lira, saying the currency’s weakness doesn’t reflect the country’s economic realities.

Speaking to supporters in Trabzon on the Black Sea coast on Aug. 12, Erdogan dismissed suggestions that Turkey was in a financial crisis similar to those seen in Asia two decades ago—damping expectations of a boost in rates to support the currency.

The Turkish lira has lost about 40 percent of its value this year, largely over worries about Erdogan’s influence over the economy, his repeated calls for lower interest rates in the face of high inflation, and worsening ties with the United States.

“Interest rates are an exploitation tool that makes the rich richer and the poor poorer,” Erdogan said. “Nobody should try to make us fall into this trap, we won’t be fooled by this plot. Nobody should get excited.”

Erdogan, who has called himself the “enemy of interest rates,” wants cheap credit from banks to fuel growth. However, investors fear that the economy is overheating and could be set for a hard landing.

His comments on interest rates—and his recent appointment of his son-in-law as finance minister—have heightened perceptions that the central bank isn’t independent. Erdogan’s remarks also knocked back investors’ expectations of a rate increase from the central bank.

The central bank raised interest rates to support the lira in an emergency move in May, but didn’t tighten monetary policy at its most recent meeting.

On Aug. 10, the lira sank to a fresh record low, falling as much as 17 percent at one point, prompting calls from investors for central bank action to shore up the currency.

On Aug. 12, Erdogan dismissed the plunge in lira as the result of a plot against the country, and said it doesn’t reflect economic reality.

“What is the reason for all this storm in a tea cup? There is no economic reason for this. … This is called carrying out an operation against Turkey,” he said.

Deadline

Turkey’s spat with the United States has weighed further on the lira. The two NATO allies have been at odds over a wide range of issues: diverging interests in Syria, Ankara’s ambition to buy Russian defense systems, and more recently, the case of Andrew Brunson, an evangelical pastor on trial in Turkey.

After Brunson had been in jail for almost 20 months, a court in July ordered him to be moved to house arrest. Since then, President Donald Trump and Vice President Mike Pence have called for his release, while Ankara says the decision is up to the courts.

Washington, in response, sanctioned two Turkish ministers, and Trump on Aug. 10 announced the United States would double tariffs on steel and aluminum imports from Turkey, saying relations with Ankara were “not good at this time.”

“Our response to those who wage a trade war against the whole world, and include our country in that, would be heading towards new markets and new alliances,” Erdogan said.

Earlier this month, a Turkish delegation went to Washington and met with American counterparts, but there was no breakthrough.

On Aug. 12, Erdogan revealed details of talks between the two countries over the pastor, saying the United States had given Turkey until Aug. 8 to release the pastor.

“If we did not release him, they said they would sanction us. … What happened? Immediately, we have imposed the same sanctions on their ministers,” Erdogan said.

By Humeyra Pamuk