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Erdogan says only traitors or illiterates link the rate to inflation

(Bloomberg) – President Recep Tayyip Erdogan has come out against raising interest rates as a cure for inflation a day after Turkey’s central bank opted to continue its ultra-loose approach, even as pressure goes up on consumer prices and read it.

“Those who try to impose a link between the reference rate and inflation on us are either illiterate or traitors,” Erdogan said Friday in Istanbul, addressing a group of businessmen. “Pay no attention to the ramblings of those whose only quality is to see the world from London or New York.

Erdogan often blamed what he called an “interest rate lobby” for driving up the cost of borrowing and engaging in speculative attacks on the currency. Before installing Sahap Kavcioglu as central bank governor last year, Erdogan ousted his three predecessors and increasingly sought a say in monetary policy.

Still, the president acknowledged that the economic policies his government has followed since 2018 have exacted a “heavy toll” in the form of a higher cost of living for citizens. At 70%, Turkey’s annual inflation is currently 14 times higher than the central bank’s official target.

Turkey keeps rates unchanged despite pound and inflation risks

Erdogan nevertheless challenged orthodox economic views, insisting that high rates are the cause of faster inflation, not the other way around. The central bank kept its benchmark at 14% for a fifth month on Thursday, leaving Turkey with the deepest negative rates in the world after price adjustment.

The Turkish lira weakened 8.4% against the dollar in May, making it the worst performer among emerging market currencies. Inflation is expected to accelerate past 74% in May, according to the median estimate of a Bloomberg survey of 15 analysts. The statistics office will release the data on June 3.

Whatever the cost, Erdogan defended his government’s economic program as “coherent and scientific” and said the current level of the pound helps preserve Turkey’s competitiveness.

“We’re all in this together,” he told the audience on Friday. “There is enough data to inspire hope. We are doing well on production, employment and exports.

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