Turkish President Recep Tayyip Erdogan - Photo: Independent

JAKARTA (TheInsiderStories) – Turkish President Recep Tayyip Erdogan said the country will lower interest rates to single digits soon and inflation will follow suit, state-run news agency Anadolu said on Sunday (09/8). Inflation in Turkey has slowed to 15 percent in August from 25.2 percent in October, a fifteen-year high, opening the way for more rate cuts.

The statement from the Turkish president, who is known for his criticism of high-interest rates and calls for lower borrowing costs to boost economic activity, come a day after he said he believes the central bank will lower interest rates when its monetary policy committee meets on Thursday.

The president sacked the central bank governor in July for failing to live up to his expectations for rapid cuts to interest rates. The new governor, Murat Uysal, delivered a 425 basis-point cut to the benchmark rate in the first meeting he chaired. The rate now stands at 19.75 percent.

“As interest rates fall, inflation will downgrade too, you will see,” Erdoğan said in a speech in Turkey’s central province of Eskişehir. We are lowering and will lower interest rates to single digits in the shortest period, inflation will also slow to single digits,” he adds.

The drop in inflation after rate cuts is an apparent reference to Erdogan’s personal belief that price gains slow when the cost of borrowing is reduced. While, the lira jumped 2.1 percent in the five days through Sept. 6, its first weekly gain since August 9.

“The monetary policy board meets on Thursday. I believe interest rates will fall further,” Anadolu quoted Erdoğan as saying.

Economists say that a severe economic slowdown in the country, which has depressed domestic demand, could mean inflation eases to single digits by October before accelerating again. The central bank is likely to cut interest rates by at least two percentage points to 17.75 percent at this week’s meeting, according to report published on Tuesday by Inan Demir, an economist at Nomura in London.

Turkey’s annual inflation rate fell to 15.01 percent in August from 16.65 percent in the previous month and below market expectations of 15.51 percent. It was the lowest rate since May 2018, opening the way for more rate cuts. Consumer prices last month were 15.01 percent higher than a year ago, Turkish Statistical Institute has shown.

Year-on-year, prices rose at a softer pace for food & non-alcoholic beverages (17.22 percent vs 18.21 percent in July); housing & utilities (14.02 percent vs 16.05 percent); transportation (6.72 percent vs 13.67 percent); furniture & household equipment (20.13 percent vs 25.41 percent); hotels, cafes & restaurants (18.52 percent vs 19.85 percent); miscellaneous goods & services (20.98 percent vs 26.93 percent); communication (3.57 percent vs 6.29 percent).

On the other hand, cost advanced faster for clothing & footwear (4.70 percent vs 4.18 percent); alcoholic beverages & tobacco (41.42 percent vs 19.23 percent) and education (17.59 percent vs 13.68 percent).

The annual core inflation rate, which excludes energy, food, and non-alcoholic beverages, alcoholic beverages, tobacco, and gold, eased to 13.60 percent in August from 16.20 percent in July.

On a monthly basis, consumer prices went up 0.86 percent, slowing from a 1.36 percent gain in July and below market expectations of 1.3 percent. Prices declined for food & non-alcoholic beverages (-0.77 percent); transport (-1.94 percent) and clothing & footwear (-1.10 percent).

Meanwhile, increases were recorded for housing & utilities (2.04 percent); furniture & household equipment (0.16 percent) and hotels, cafes & restaurants (0.75 percent).

Written by Lexy Nantu, Email: lexy@theinsiderstories.com