President Recep Tayyip Erdogan’s stance on interest rates is clear.
Erdogan is always against high-interest rates. He claims that a high-interest rate is an important cost element and that inflation always rises because of it.
President Erdogan reiterated his stance on interest rates and prices in a TV program last week and this time he was very assertive, so much so that he gave a date for rate cuts. He previously stated in June that the Central Bank may opt for a rate cut in either July or August. This time, Erdogan predicted that both the inflation and the interest rate will decline in August.
First, let’s see what he said word for word then talk about the possibilities:
“About inflation… We will see a decrease in inflation as we leave August behind. But to what extent? The inflation will probably be far, far below the current levels. I guess I am giving certain signals to certain places. Because inflation can’t go higher so we are going to see a decrease in interest rates once again. And no high interest rates because high interest rates will bring us high inflation while low-interest rates will bring us low inflation. August is the breaking point. And as of August, hopefully, we will move to low inflation.” Signal to whom? A part of Erdogan’s statement is quite interesting. He says inflation will be lower and says he’s giving certain signals to certain places. So, where are these places? Is it TurkStat, the institute which calculates the inflation rate? Is it the Central Bank, which has the authority to lower the interest rate, thereby contributing to the recession of inflation?
Or is it the business world, which can contribute to the decrease in inflation by not increasing the prices of its goods and services?
WHAT IS THE TREND IN AUGUST?
The sine qua non for seeing lower annual inflation in August is obvious: consumer prices increasing by less than 0.86%.
Prices rose by 0.86% in August last year. If the prices come below this rate this year, the 18.95% annual rate seen at the end of July will go down. But if the rate rises higher than 0.86% then Erdogan’s promise of lower inflation will not come true.
But if President Erdogan doesn’t mean that the annual rate will decline and instead forecasts a lower monthly rate compared to other months this year, I don’t know about that.
The average increase in August between 2003 and 2020 is 0.40%. The August average is much lower, 0.29%, excluding the extraordinary 2.30% rate due to the currency shock in August 2018. Therefore, the 0.86% of August 2020 rate is well above average. So it wouldn’t be surprising to see the increase remaining closer to normal levels and the annual rate decreases.
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