In a moment that felt like it was penned by a screenwriter with a flair for economic satire, Turkish President Recep Tayyip Erdoğan stood before the nation and boldly declared that interest rates were falling. This would have been heartening news for anyone fearing loan repayments, economic sluggishness or an overly enthusiastic central bank, if not for the tiny detail that Turkey’s central bank had raised interest rates just hours prior.
The Central Bank of the Republic of Turkey, clearly unaware of the script it was meant to follow, announced an increase in the benchmark interest rate from 30 percent to 35 percent in a bid to wrestle inflation into a more socially acceptable range. Current inflation hovers around 61 percent compared to the same time last year, which is the kind of number that makes economists reach for their calculators and citizens reach for their coffee.
Nevertheless, Erdoğan, never one to let a little number like 5 percent get in the way of a good narrative, told reporters that interest rates are “falling,” a statement that may have required a flexible definition of “falling” and possibly a forgiving relationship with mathematical reality. This brief bout of economic optimism materialised just before his flight to Kazakhstan, where, one presumes, the local perspectives on monetary policy might offer a welcome change of scenery.
Erdoğan has long maintained a unique theory of economics in which high interest rates cause inflation rather than curb it, a position that mainstream economists have met with the sort of facial expressions usually reserved for someone claiming that gravity is a socialist construct. During much of the past two years, his unconventional stance led to a near free fall of the Turkish lira and consumer prices doing their best impersonation of a hot air balloon with unlimited fuel.
However, since a surprising policy pivot earlier this year that began with the appointment of a more orthodox economic team, the central bank has diligently raised interest rates multiple times in hopes of cooling down the inflation-fueled economy. Erdoğan, now faced with the reality of this newfound orthodoxy, appears to be playing an intriguing game of economic peekaboo in which he hides from the numbers and hopes nobody notices.
In Turkey these days, interest rates might be on the rise but reality remains flatly optional.