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Erdogan says Turkey to rapidly remove ‘bubble’ over inflation

04 January 2022 17:47 (UTC +04:00)

President Recep Tayyip Erdogan on Tuesday said the “the worst part is behind us,” as he reiterated the government’s determination to not allow citizens to be crushed by high prices, APA reports citing Daily Sabah.

Erdogan said they had taken the bubble over the exchange rate with the recently unveiled scheme to safeguard lira deposits against currency volatility.

“We will now rapidly remove the bubble over inflation and save the country from the outlook it does not deserve,” the president told provincial leaders of his ruling Justice and Development Party (AK Party).

Under the scheme announced last month, the state protects converted local deposits from losses versus hard currencies, a measure designed to make citizens feel safer about their savings in the bank.

Erdogan’s remarks came after the country’s annual inflation in December accelerated to its highest level in 19 years. Consumer prices rose to nearly 36.1%, the highest reading since September 2002, official data showed Monday, driven by the lira swings and transport and food prices.

Speaking after a Cabinet meeting on Monday, Erdogan said he was saddened by the inflation data and that his government was determined to lower it to single digits, blaming the climb on global commodity prices and the weaker lira.

He also said authorities would inspect exorbitant price rises.

Separately, Treasury and Finance Minister Nureddin Nebati on Tuesday said the country looks to lower inflation through new financial instruments similar to the recently unveiled foreign exchange-protected deposit accounts and by increasing the Turkish lira’s attractiveness.

Deposits in the forex-protected scheme announced on Dec. 20 have reached TL 84 billion ($6.4 billion), Nebati said.

The scheme effectively ties the value of special new deposits to the United States dollar by promising to compensate for losses incurred from swings in the exchange rate.

“By developing instruments like the new forex-protected deposit accounts and increasing the lira’s attractiveness, we will lower inflation,” Nebati told Anadolu Agency (AA), adding that once stability is achieved, Ankara would boost production and exports.

The initiative had reversed the lira slide and triggered a historic 50% surge in the currency’s value in the week through Dec. 24.

The lira was down as much as 4% against the U.S. dollar on Tuesday and stood at 13.295 by 9:46 a.m. GMT, from a close of 12.96 on Monday. It had hit a record low 18.4 two weeks ago before rebounding following the government’s steps to support the currency.

“Volatility in the foreign exchange rate and price hikes hurt us, but we will leave them behind,” Erdogan said.

Inflation has been around 20% in recent months, driven by the lira slide after the central bank slashed its policy rate by 500 basis points to 14% from 19% since September. It will hold its next rate-setting meeting on Jan. 20.

Erdogan said they see exchange rate fluctuations and price hikes as “thorns” on the path.

“We will leave these behind in a short time and ensure that our country becomes one of the top 10 largest economies in the world.”