Erdogan says tackling inflation is most urgent issue

REUTERS/Umit Bektas

Turkish President Tayyip Erdogan said in his victory speech that inflation was the most urgent issue for the country, but said it would also fall, following the policy rate that was cut to 8.5 percent from 19 percent two years ago.

“We are designing an economy focused on investment and employment, with a finance management team that has international reputation,” Erdogan told his supporters at his palace in Ankara.

Erdogan extended his two decades in power in elections on Sunday, winning a mandate to pursue increasingly authoritarian policies which have polarised Turkey and strengthened its position as a regional military power.

Meanwhile, Turkey’s lira slipped towards a fresh record low against the dollar.

The currency hovered above the 20.00 to the dollar threshold as trading got underway, not far off the 20.06 record low hit on Friday.

The lira, prone to sharp swings before regular trading hours, has weakened more than six percent since the start of the year and lost more than 90 percent of its value over the past decade with the economy in the grip of boom and bust cycles, rampant bouts of inflation and a currency crisis.

Since a 2021 crisis, authorities have taken an increasingly hands-on role in foreign exchange markets with daily moves having become unnaturally small and mostly recording a weakening while FX and gold reserves have dwindled.

“The current set up is just not sustainable,” said Tim Ash at BlueBay Asset Management. “With limited FX reserves and massively negative real interest rates the pressure on the lira is heavy.”

Erdogan prevailed despite years of economic turmoil which critics blame on unorthodox economic policies which the opposition had pledged to reverse.

His surprise strong showing in the first round of the election two weeks ago had triggered a selloff in Turkey’s international bonds and a spike in costs to insure exposure to its debt amid fading hopes of a change in economic policy.

Analysts were cautious in how much economic change Erdogan’s new government would herald.

“Erdogan is unlikely to embrace an outright economic orthodox approach,” Wolfango Piccoli, co-president at advisory firm Teneo said in emailed comments.

“However, some adjustments to the current heterodox approach could be adopted with the aim of gaining time ahead of the March 2024 local elections.”

Trading is expected to be thin on Monday, with many markets in Europe, as well as the United States, closed for holidays.