Turkey's Erdogan vows to keep cutting rates to fight inflation if re-elected

London CNN

Recep Tayyip Erdoan, the Turkish president, has pledged to continue his unorthodox interest rate-cutting policy to combat inflation when he is reelected on May 28, 2018.

In an exclusive interview with CNN's Becky Anderson on Thursday, he said: 'Please follow me after the elections and you will notice that inflation along with interest rates will go down.' When asked if that meant no changes in economic policy would take place, he responded: "Yes." Absolutely.'

Erdogan, who wants to extend his 20 year rule, barely managed to get 50% of the votes in Sunday's Turkish presidential election. The runoff will be held at the end this month.

He performed better than polls had predicted, sending Turkish shares tumbling on Monday and pushing the currency's value to a record low against US dollars.

Last year, the Turkish lira fell by over 40% as Erdogan's economic policies caused inflation to soar. Turkey's central bank has done the opposite of what most other countries have done to combat rising prices.

I have a hypothesis that interest rates are directly related to inflation. Erdogan told CNN that the lower interest rates are, the lower inflation will be.

In this country, we'll see the inflation rate and interest rates go down, so people will feel relieved. As an economist, I can say that. This is not a dream.

Prices are soaring

Erdogan ordered Turkey's Central Bank to cut interest rates in late 2021 as prices began to rise around the globe. According to the Turkish Statistical Institute, consumer price inflation reached 85% in October last year, before easing to a still high 44% rate in April.

James Reilly said that 'President Erdogan’s unexpectedly high showing in Turkey’s presidential election on sunday means that a returning to orthodox policymaking appears as far away from ever'. The Turkish Lira is likely to continue under pressure throughout this year as a result.

He added that a likely win for Erdogan on the 28th of May would continue low interest rates and a high level of inflation.

Turkish consumers are being hurt by price increases that are out of control, while the economy is still recovering from a devastating February earthquake. According to the World Bank, the disaster caused an immediate damage of $34 billion, or roughly 4%, the annual economic output in Turkey. It killed at least 45 000 people and left millions homeless.

Analysts at JPMorgan said on Monday that Turkey would need to curb inflation and safeguard financial stability in order to put the economy on track for sustainable growth, regardless of the election results. They added that the outlook of the country will depend on how far it moves back to the mainstream of economics. If policies are changed to a greater orthodoxy the disinflation will be quicker.

Erdogan reaffirmed his message of optimism, saying that: "We have overcome challenges in the past and we are strong now as Turkey."

He said that the gross domestic product (GDP) per capita of the country, which measures national wealth, has risen from "around $3,600" to $10,650 "right now." He added that the number would likely reach $15,000 within the next few months.

According to the most recent World Bank data, Turkey's GDP (gross domestic product) per capita was $3,641 before Erdogan became Prime Minister in 2002 and will reach $9,661 by 2021.