ANKARA, July 8 (Xinhua) — Türkiye has taken a significant step in combating inflation, which has been causing a cost-of-living crisis in the country. In a departure from President Recep Tayyip Erdogan’s unorthodox policies, the Turkish government has hiked interest rates for the first time in over two years. While experts acknowledge the need for restoring conventional economic policies, they also emphasize that it will take time and effort to see the real effect.
The interest rate hike came on June 22, nearly a month after President Erdogan’s reelection for a third term. Led by Finance and Treasury Minister Mehmet Simsek and Governor of the Central Bank Hafize Gaye Erkan, the new investor-friendly economic team raised the benchmark interest rate from 8.5 percent to 15 percent. However, the market response to the 650-basis-point rate rise was underwhelming, resulting in sharp declines of the Turkish lira against the U.S. dollar. Another rate hike is expected at a new central bank meeting scheduled for July 20.
“There is no quick fix to Türkiye’s economic problems. We have been experiencing these problems for three or four years, and there’s been no improvement,” says Baki Demirel, a professor of economics at Yalova University. Demirel warns that radical monetary tightening measures, such as a hike to 30-40 percent, may further disrupt the economy, leading to the collapse of small and medium-sized companies and mass unemployment.
Addressing the negative impact of the lira slump on purchasing power, Demirel suggests that the government regulate markets to prevent excessive price hikes. He emphasizes that fairer distribution of wealth is what Türkiye needs the most.
The exchange rate of the Turkish lira has plummeted from 7.5 per dollar in 2020 to over 26 at present. Despite the easing of the annual inflation rate to 38.2 percent in June from a 24-year high of 85.5 percent in October last year, the prices of housing, commodities, and food continue to soar, as per official data published on Wednesday.
“The decrease in inflation will take time,” says Enver Erkan, chief economist at Istanbul’s Dinamik Investment Securities. To achieve economic stability, Erkan suggests that Türkiye should focus on increasing exports and attracting foreign direct investments.
In late June, the Turkish government announced a 34-percent increase in the monthly minimum wage to alleviate the burden on households. Additionally, plans are underway to raise taxes on banks and corporations and introduce a one-off additional motor vehicle tax to address the financial strain caused by the devastating earthquakes in February.
Guven Sak, the founding executive director of the Ankara-based Economic Policy Research Foundation of Türkiye, emphasizes the need for reforms and belt-tightening to restore confidence in the Turkish economy. He acknowledges the previous irrational decisions made by the country and believes that returning to a reasonable path will require time.
Credit: The Star : News Feed
