President Tayyip Erdogan promised on Wednesday to tame Turkey’s surging inflation, which hit 36% last month, but economists predicted it could push much higher, piling further pressure on the battered lira currency.
The lira shed 44% of its value in 2021, its worst performance in Erdogan’s near two decades in power.
“The swelling inflation is not in line with the realities of our country,” Erdogan said, adding that the government’s measures would soon soften the burden of “unjust” price hikes.
Despite the recent market volatility, Turkey’s economy is estimated to have grown by a hefty 9.5% in 2021, the World Bank said in its latest Global Economic Prospects report, as it rebounded from the coronavirus pandemic and related lockdowns.
But the bank also forecast that growth would slow to 2.0% this year and 3.0% in 2023. In its previous report last June, it had seen growth of 5.0% in 2021 and 4.5% in both 2022 and 2023.
Turkey’s $720-billion economy grew 0.9% in 2019 and 1.8% in 2020, weighed down by a recession triggered by a separate currency crisis and later by the pandemic.
After the lira slumped to a record low of 18.4 against the dollar in late December, Erdogan announced a scheme to encourage savers to convert foreign exchange deposits, compensating depositors for any losses due to lira weakness.
On Tuesday Turkey added corporate accounts to the scheme, which the Treasury says has attracted some 108 billion lira ($7.8 billion) of deposits.
Goldman Sachs said it expected Turkish authorities to attempt “more administrative and regulatory measures” to curb inflation before making an eventual monetary policy U-turn.
But Carlos de Sousa, EM debt portfolio manager at Vontobel Asset Management, said he did not see rate hikes any time soon.
“This time is different. Erdogan has finally got tired (of having high interest rates),” he said.