Turkey’s inflation hits 18%, pressures lira
ISTANBUL — Turkey’s central bank vowed to take action after inflation hit its highest pace in 15 years, fueling expectations that it will raise interest rates next week, but analysts questioned how far the institution could defy President Recep Tayyip Erdogan’s prescription of lending on the cheap.
Turkish annual consumer-price inflation hit 17.9%, up from July’s reading of 15.9%, as higher transport and energy costs were affected by a sharply weaker Turkish lira, the state statistics agency said Monday.
Minutes later, the central bank said the August reading posed a serious risk to price stability.
"We will take necessary actions," the central bank said in a statement. "Monetary stance will be adjusted," it added, bolstering expectations that it will increase rates when it meets on Sept. 13.
The comment gave a boost to the lira, though it was still more than 1% weaker than where it traded Friday. In midday European trading, $1 bought 6.62 lira.
Economists said the central bank would likely come under government pressure to limit the rate increase.
"To our mind the central bank should surprise the market by raising rates by at least 10%," Rabobank economist Piotr Matys said. "However, as always, there is a massive difference between what the central bank should do and what it will be capable of doing amid perceived dislike for higher rates amongst prominent Turkish officials."
Turkey’s Finance Minister Berat Albayrak — Mr. Erdogan’s son-in-law — has said fighting inflation was a priority and that the central bank was independent in defining monetary policy.
Although hiking interest rates is widely seen as the most common tool to combat inflation and support a national currency — the lira has lost more than 40% this year — it has also been the most elusive in Turkey.
Mr. Erdogan, who has run Turkey for the past 15 years and won a new five-year mandate in June, says higher rates are a drag on investment and therefore hurt his goal of propelling high economic growth.
A significant rate increase could be fraught with political risk for Mr. Erdogan because many small entrepreneurs, who form a core part of his electoral base, depend on access to cheap loans to keep their businesses afloat.
"We know very well the steps we need to take," Mr. Albayrak told a gathering of Turkish businessmen last week, repeating his pledge to announce a detailed economic program during September.
The Turkish economy had a stunning run last year, expanding 7.4%. But economists say much of that growth was achieved on the back of foreign currency loans, which are now at the heart of growing concerns over Turkey’s financial stability. The weaker lira has increased the burden of repaying those loans, and a string of corporate defaults could weigh on Turkish banks, economists say.
The government says the economy is robust, but debt-related problems have started to bubble up, sometimes in an odd fashion.
At the Metrocity shopping mall in central Istanbul on Monday, customers were instructed to use staircases while a group of mechanics was dismantling escalators. The company said the mall’s escalators had been impounded at the request of a creditor seeking to recover debt.
"This debt is definitely not ours," Metrocity said in a statement, adding it had appealed the impounding through the courts.
Write to Yeliz Candemir at [email protected]
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