Tuvan Gumrukcu and Nevzat Debranoglu

ANKARA (Reuters] – President Tayyip Erdogan said Wednesday that he would manage Turkey’s rising inflation. It reached 36% last month. However, economists predict it will push even higher and put more pressure on the battered lira.

Erdogan has been in power for nearly 20 years and the Turkish lira saw its most severe performance since then, when it lost 44%.

At 1705 GMT it was at 13.31, an increase of Tuesday’s closing price of 13.8. It had risen as high as 4.7% up to 13.15 earlier on Wednesday, the highest level it has seen in over a week. However, it wasn’t immediately obvious why.

The lira has held steady in an 13.7-13.94 range, thanks to both costly interventions by the state in the currency market as well government actions that calmed a crisis full-blown last month.

Erdogan stated that Turkey was protecting its economic system from what he calls attacks. He also said that Turkey had taken control of “foreign financial instruments” which can cause disruption to the financial sector.

Erdogan declared that rising inflation was not in accordance with our reality and stated that the government would take steps to reduce the impact of unjust price rises.

Erdogan’s demands for higher growth through increased production, exports and trade, has forced the central bank to reduce its policy rate 500 basis points, from 14% in September, under pressure. The central bank will hold its next rate-setting meeting Jan 20.

In a research note, Goldman Sachs (NYSE 🙂 stated that it expects annual inflation to surpass 40% by January. After which, it could rise to 50%. It would then continue to climb until the end. Base effects will lower it to about 33%.

According to Wall Street Bank, “The extremely negative real rates” and the rapid rate of loan growth would likely cause inflation to rise and keep the lira under pressure.

ECONOMIC GROWTH

The recent volatility in the market is not a problem for Turkey’s economy. According to the World Bank, Turkey’s economic growth was 9.5% in 2021. This comes after it recovered from the coronavirus epidemic and associated lockdowns.

However, the bank predicted that growth would slow down to 2.0% this year and 3.0% 2023. The bank had reported in June last year that the forecaster for growth was expecting 5.0% growth in 2021 and 4.5% growth in 2022, 2023 and 2023.

Turkey’s economy of $720 billion grew by 0.9% and 1.8% respectively in 2019, despite being hit by a currency crisis, and then later the pandemic.

Erdogan launched a plan to promote savers to convert foreign currencies deposits. It also compensates depositors in case of losses caused by lira weakening.

Turkey’s corporate account was added to the scheme on Tuesday. According to Treasury, the Treasury estimates that it has attracted 108 billion Lira ($7.8 trillion) in deposits.

Goldman Sachs indicated that they expected Turkish authorities “to try more administrative and regulatory steps” to control inflation, before making a final monetary policy Uturn.

Carlos de Sousa is Vontobel Asset Management’s EM portfolio manager. He said he doesn’t expect rate rises anytime soon.

“This is a new time. Erdogan finally tired of paying high interest rates,” he declared.

($1 = 13.8134 liras)

Writer Daren Butler, Editing Gareth Jones.