Erdogan vows to bring Turkish inflation under control as skepticism grows

Turkish Lira banknotes are pictured at an exchange office in Istanbul, Turkey on August 13, 2018. REUTERS / Murad Sezer

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  • After falling 44% last year, the pound is stable last week
  • World Bank predicts 2% GDP growth in 2022.3% next year
  • Ankara says deposits in pound protection program increase
  • Pound to remain under pressure, Goldman Sachs says

ANKARA, Jan. 12 (Reuters) – President Tayyip Erdogan on Wednesday pledged to contain soaring inflation in Turkey, which reached 36% last month, but economists predicted it could push much higher, exerting additional pressure on the ruined pound.

The pound lost 44% of its value in 2021, its worst performance in nearly two decades in Erdogan’s power.

It stood at 13.31 against the dollar at 5:05 p.m. GMT, up from Tuesday’s close of 13.8. Earlier on Wednesday, it had climbed to 4.7% to 13.15, its highest level in over a week, although it was not immediately clear why it had firmed so much.

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Thanks in part to costly state interventions in the foreign exchange market and government measures that helped calm a widespread crisis last month, the pound had largely held in the 13.7 to 13.94 range since then. last Thursday.

Speaking in parliament, Erdogan said Turkey was protecting its economy from what he called attacks and had taken “foreign financial tools that can disrupt the financial system” under control.

“The rising inflation is not in line with the realities of our country,” Erdogan said, adding that the government’s measures would soon ease the burden of “unfair” price hikes.

Under pressure from Erdogan, who is seeking higher growth by boosting production and exports, the central bank has cut its key rate by 500 basis points to 14% since September. It is holding its next rate-setting meeting on January 20.

Goldman Sachs said in a research note that it expected annual inflation to exceed 40% in January, after which it could exceed 50% and stay high until the end of the year, when base effects would reduce it to about 33%.

“Deeply negative real rates and high lending growth will likely keep inflation high and continue to put pressure on the lira,” the Bank of Wall Street said.

ECONOMIC GROWTH

Despite recent market volatility, the Turkish economy is estimated to have grown 9.5% in 2021, the World Bank said in its latest Global Economic Outlook report, as it rebounded from the coronavirus pandemic and the associated blockages.

But the bank also predicted that growth would slow to 2.0% this year and 3.0% in 2023. In its previous report last June, it had recorded growth of 5.0% in 2021 and 4.5%. % in 2022 and 2023.

Turkey’s $ 720 billion economy grew 0.9% in 2019 and 1.8% in 2020, weighed down by a recession triggered by a separate currency crisis and later by the pandemic.

After the pound fell to a record 18.4 against the dollar at the end of December, Erdogan announced a program to encourage savers to convert their deposits into foreign currency, compensating depositors for any losses due to the weakness of the delivered.

Turkey on Tuesday added business accounts to the program, which the Treasury said attracted some 108 billion lire ($ 7.8 billion) in deposits. Read more

Goldman Sachs said he expected Turkish authorities to attempt “more administrative and regulatory measures” to curb inflation before making a possible change in monetary policy.

But Carlos de Sousa, EM debt portfolio manager at Vontobel Asset Management, said he didn’t expect rates to hike anytime soon.

“This time it’s different. Erdogan is finally fed up (with high interest rates),” he said.

($ 1 = 13.8134 lire)

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Additional reporting Marc Jones in London and Ezgi Erkoyun in Istanbul; Written by Daren Butler; Editing by Gareth Jones

Our Standards: Thomson Reuters Trust Principles.

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