site.btaUPDATED New Inflation Spike in Turkey. What Will the Government Do?
At the beginning of October, the Turkish Statistical Institute reported that inflation had reached 83.45% year-on-year in September, which is the highest in 24 years. That is, since July 1998, when inflation was 85.3% and Turkey was struggling to end a decade of chronically high inflation.
Experts warn that inflation could spike to 100% by the end of 2022.
Financial analysts say that the main difference between the current situation and the 1990s crisis lies in the fact that at the end of the last century Turkey had a different economic system and Turkish authorities did not have the economic ambitions they have now.
The Turkish lira has hit a record low against the US dollar, trading on September 30 at 18.56 lira for 1 US dollar. The lira continues to depreciate after the Monetary Policy Committee of Turkey’s Central Bank on September 22 cut the key interest rate from 13% to 12%.
The economic crisis in the country has led to a stern decline in the standard of living of most Turkish citizens. More and more professionals, mainly doctors, are leaving their homeland in search of better remuneration for their work. Many citizens are forced to buy only basic groceries and are finding it difficult to pay their household bills. The ongoing price increase is forcing people to give up many things that they used to be able to afford, thus many Turks no longer go to restaurants, bars, or cinemas.
Turkish President Recep Tayyip Erdogan continues to claim that high interest rates remain the main problem standing in the way of the country's economic development.
According to him, once the key interest rate has been cut to 12% the authorities will continue to act in this direction. He is keen to see this rate reduced below 10%.
Erdogan predicts lower inflation in Turkey under the influence of low interest rates as soon as the new year comes. He says that his country’s goal is to eliminate the problem related to inflation and asks banks to “support” investors.
This week, President and leader of the ruling pro-Islamist Justice and Development Party Erdogan described Islamic banking as a priority in Turkey's financial policy, adding that "the difficulties in the country's economy only strengthen it."
Islamic banking provides for the performance of banking activities in accordance with Islamic norms, where interest on loans and various financial speculations are prohibited. Islamic banks do not lend at conventional interest rates and use other forms (installment loans, leasing, equity financing).
Erdogan said that Islamic banking is one of the priority areas in all strategic documents of our government, especially in the development plans and medium-term programmes, and added that the mechanisms used by Islamic banking help strengthen the economy and its development, and increase its resilience to crises.
Analysts at J.P. Morgan warn that inflation in Turkey is likely to remain abnormally high until policies are changed. The global recession, its impact on commodity prices, and the rate of depreciation of the lira will be the main factors determining inflation, J.P. Morgan added.
Nevertheless, Turkey's government continues to maintain that "inflation will decline as its economic programme prioritises low interest rates to boost production and exports".