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World Turkey: Loose monetary policy despite record inflation?

06:55  20 january  2022
06:55  20 january  2022 Source:   pressfrom.com

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with tension is expected whether the Turkish central bank further reduces the key interest rate on Thursday despite a massive inflation and thus fulfills demands of President Recep Tayyip Erdogan.

Das Leben in der Türkei wird immer teurer. © Francisco SECO / AP / DPA Life in Turkey is becoming more and more expensive.

Inflation had reached a record value of around 36 percent in December and is thus as high as never under the leadership of Erdogan. Experts assume that the Central Bank consolidates interest rate cutting this time, but in principle maintains their in the face of dramatic inflation loose monetary policy. With inflation, a price decline in Turkish Lira, which has lost more than 40 percent of their value to the euro since the beginning of the year.

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idiosyncratic Economic Policy

The reason for the situation generally applies the economic policy of the President and the pressure that this exercises on the central bank to lower the key interest rate. Erdogan believes that they combat high inflation with low interest rates - contrary to common practice. At the end of December, it came to strong price losses - and a recovery within only one day after Erdogan had arranged support measures for the Lira. The president also wanted to achieve that the Turks create their money in Lira instead of fleeing the dollar. The effect of the measures is partially pasted again. In the meantime, the course has shifted to more than 15 lira for the euro at a low level. The idiosyncratic economic policy of the Turkish President sets the population and businesses challenges, including Germans.

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Erdogan Target

Erdogan wants to boost the economy with lower interest rates before the parliamentary and presidential election 2023 and hopes to create jobs. The president has urgently needed. In the latest survey of the Institute Metropoll, Erdogan on the popularity scale landed only in fourth place behind three opposition politicians and potential presidential candidates.


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Erdogan wants to rebuild the economic model of Turkey in addition to an export-oriented economy with low sewings and low exchange rate. In the early January, the President pointed out that exports increased by around 33 percent last year. The fact that the population is currently suffering primarily among the high food, energy and fuel prices, the President certainly takes note of. "Of course we know that the exorbitant price increases and the rising inflation oppress our nation," said Erdogan recently. He refers to the world's higher energy prices and does not believe in a homemade problem.

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Turkey depends on imports

experts doubt that the conversion towards an export-oriented economy without accompanying measures will quickly lead to success or it is so possible to get the inflation under control. Selva Demiralp, economic professor at the KOC University in Istanbul, points out that Turkey is dependent on importing advance payment products such as raw materials. Through the weak Lira, for many companies, the production costs and the price advantage was limited. "Such a transformation does not take place in a short time," gives them considering. In addition, innovation-based investments are needed and a specialization to create a competitive advantage.

The population can also afford imported products through a weak Lira. "We all want Turkey to produce more in the country, but to use monetary policy in this way is risky and not the right way," criticizes Demiralp.

No planning security

«The model produces which, which can live well and which, who have difficulties, says Thilo Pahl, Managing Director of the German-Turkish Chamber of Commerce in Istanbul. From the loss of the Lira, some industries benefited even, such as some export-oriented German companies in Turkey. Even in October, so before the recent currency turbulence, a majority of the companies surveyed by the AHK saw their business situation positively with German capital participation.

The volatility of the currency is a problem because companies had no planning security, so pair. "The economy is extremely difficult because it is not calculable.» It is difficult to calculate an offer for a customer who wanted to have a product in two months, because you do not even know what value the Lira then at all. Asked for the risks in Turkey, the surveyed German companies already called in October: Exchange Rates and Economic Policy.

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