Prioritising price stability in Turkey should not undermine the government’s efforts to provide financial support to manufacturers and the wider economy, columnist and economist Kerem Alkın said in the Sabah newspaper.
Tight monetary and fiscal policy, backed by the International Monetary Fund in a report this week, may constitute a direct threat to President Recep Tayyip Erdoğan’s economic successes, demonstrated during the COVID-19 pandemic, Alkın said in a column published on Friday.
“Cooling down the Turkish economy to such a degree means making life even more difficult for tens of thousands of small and medium-sized enterprises in our country. It means torpedoing the impact of support packages, introduced one by one on the orders of President Erdoğan, to support the real sector and tradesmen.”
Turkey’s central bank has more than doubled interest rates to 17 percent since September to help defend the lira and rein in double-digit inflation. On Thursday, Governor Naci Agbal, appointed by Erdoğan in November after the lira sank to a record low, vowed to keep monetary policy tight and perhaps raise interest rates further until inflation slows towards a medium-term goal of 5 percent.
Higher interest rates mean the cost of loans for businesses and consumers in Turkey has surged. Average rates on commercial loans have climbed to an annual 20.5 percent from 12.2 percent in August, according to central bank data. Consumer price inflation stands at 14.6 percent.
“Let’s come to the issue of ‘price stability is the main priority’. If what is meant here is to increase interest rates even more … we will sabotage production, employment and exports with our very own hands,” Alkın said.
Alkın accused the IMF of behaving unethically by setting an economic growth estimate for Turkey this year of 6 percent while at the same time applauding the authorities for tight monetary and fiscal policy measures. The IMf also said in its report that Turkey’s central bank may need to increase interest rates further and warned against premature easing of policy.
“The IMF’s economists are making fun of us,” he said. “They say “continue with tight monetary and fiscal policies” and set a growth goal of 6 percent, when they know full well that this means growth of 3.5-4 percent.
“Meanwhile, they are proposing that the leading countries of the world, and the United States and European Union in particular, continue with expansionary monetary policy and, more importantly, fiscal policy,” he said.
Alkın also warned that the lira, which has rallied from a record low of 8.58 per dollar to trade at around 7.35 against the U.S. currency, may soon become over-valued, threatening exports and encouraging more imports.
“Of course, currency stability is important. However, exchange rate stability should not mean an overvaluation of the lira,” he said.
“If Turkey implements a monetary policy that makes the currency uncompetitive, the result will be a slowdown in exports and interest rate arbitrageurs will make extra profits.”