Erdogan and interest rates : Where does this visceral love come from?
First of all, a re-election next year which promises to be difficult. Erdogan is aware that a significant increase in key interest rates (30, 50 or even 60%) would lead to the collapse of the Turkish economy in the short term. However, unemployment is never very popular to win an election. This is the same dilemma faced by Jerome Powell or even Christine Lagarde, but with a much greater risk of recession.
Businessman Erdogan also believes that by prioritizing exports, investment and employment through negative real rates, the country will be able to recover more easily from the crisis.
In theory, low rates attract foreign investors and stimulate growth by allowing entrepreneurs to embark on new projects. In effect, they destroy real savings, increase bad investments, which hurts productivity and drives the country towards inflation. And when an economy like Turkey relies heavily on imported goods like energy or intermediate goods, currency depreciation promotes inflation, as input costs rise, which destroys national competitiveness.
It would seem that its policy of monetary laxity has rather deterred local savers and foreign investors from holding the national shitcoin. Or assets denominated in the national shitcoin that is the Turkish lira. Naturally, when fewer people want your shitcoin, its value tends to depreciate. Especially when you turned your country into an authoritarian regime and dismantled the rule of law.
Much like Putin, the Turkish dictator used palliatives to mitigate the collapse of his currency. For example, by obliging exporters to convert nearly half of their earnings into national currency.
“Interest rates will continue to fall every day, every week, every month,” Sözcü, a Turkish daily, said recently.
