Will Erdoğan approve of interest rate hike?

The Central Bank of the Turkish Republic (CBRT) Monetary Board will convene on March 17 to determine interest rate. The Board has been keeping the rates low as President Tayyip Erdoğan has been insisting on boosting export by the low rates, and argue that the policy rate is not a cause of inflation but a reason for it. (Photo: Presidency)

As Turkey gained diplomatic momentum from Russia’s war on Ukraine, President Tayyip Erdoğan is fully aware of his political and economic priorities. He can take two basic steps to leverage Turkey’s diplomatic prominence to its economic advantage and even translate it into votes in upcoming elections. For instance, he may allow the CBRT committee to raise interest rates at its meeting on March 17. He can explain this shift by attributing it to external factors like the Russia-Ukraine conflict. Domestic and foreign markets will react positively to such a step, and there will even be those who think that Erdogan has returned to the orthodox, traditional economic line.

Second, the president may turn a blind eye if the courts change their mind and punish Osman Kavala, if not Selahattin Demirtaş, with a sentence that will result in his immediate release. He can even explain this move by saying that courts must comply with the European Court of Human Rights (ECHR) decisions, even though he recently criticized the court for “interfering with domestic affairs,” in its rule that Kavala’s imprisonment is a violation of rights.

Interest rate hike as a political move

Even these two steps alone can give hope in the West, which may seem naive to us. After all, the money withdrawn from Russia has to go somewhere in our region. Thus, that move can increase the probability of that money coming to Turkey, right? Is Nureddin Nebati, the Minister of Treasury and Finance, searching money in London in vain?

Moreover, Erdoğan is not solely surrounded by people who approve of everything he does. Although their number is gradually decreasing, some even think that if he takes these moves, he might find relief. There are even those who go further and say that structural reforms are needed in the economy.

For example, if Erdogan approves the rate hike, the dollar rate may fall. As a result, the amount of repayments due to the Treasury’s Currency Protected Deposit Account scheme, which are set to expire on March 24, may be reduced. This may also have the effect of lowering the inflation rate. In other words, it has the potential to boost the country’s economy and help the people whose living standards are steadily deteriorating.

But would Erdogan politically approve the rate hike?

“On the brink of prosperity”

Not likely. Because if the president politically approves an interest rate hike, he would have admitted the invalidity of his argument “if I lower the interest rate, both the inflation, the cost of living and the current account deficit will decrease”, which has dragged the country into crisis since 2018. Yet he still believes this to be true. Look what the president said after yesterday’s cabinet meeting?

“If we leave aside the negativities caused by the reasons beyond our control, we are on the brink of the prosperity”

We are apparently on the brink of prosperity. What the president has dismissed as negativities is the official figure of 54 percent inflation, 25 percent real interest rate and 142 percent foreign trade deficit.

On the other hand, his rivals may ask, “what about Nas?” (God’s Words), which the president was using as a ground for his objection to interest hikes.

Legally okay, but politically?

The same is valid for Osman Kavala and other political prisoners.

The independent Turkish judiciary, which sentenced journalist Sedef Kabaş to a long enough prison sentence to cover the time she had been imprisoned and then released her, can do the same for Kavala. The ideal situation would be for these cases to be dropped right away or never to have been opened in the first place. There is no legal impediment to this, but what about politics?

Erdogan wants Kavala and Demirtaş to stay inside to make an example out of them because they objected to his Presidency. He regards the possibility of their release as a political defeat. So is his partner, MHP leader Devlet Bahçeli.

The alternative is to loosen up in the fight against rising living costs and, if necessary, raise the minimum wage, deferring the implementation of true austerity policies until after the election. This means that no matter who wins the election, the people will be subjected to austerity policies. Regrettably, we’re on our way there.

If Erdogan, on the other hand, takes such moves, we should read his actions as a sign that he views the situation as so difficult that he has no choice but to abandon his political arguments. In a few days, we’ll find out.


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