Erdogan urges central bank to cut rates despite high inflation

Inflation had been at its highest level for over eight years in April

ANKARA - President Recep Tayyip Erdogan on Tuesday urged the Turkish central bank to cut interest rates despite a jump in inflation to over 11 percent, warning of "calamities" if the rates were not snipped.
The Turkish state statistics agency said consumer prices rose 11.2 percent in September from the same period the year earlier, compared with 10.68 inflation in August.
But Erdogan, who is keen to encourage the economic growth that has been the bedrock of his electoral success, warned the nominally independent central bank it was high time to slash rates.
"If the interest rates fall, inflation falls. If the interest rate is high, it (inflation) will also be high," Erdogan told ruling Justice and Development Party (AKP) lawmakers.
Conventional economic wisdom suggests inflation should, however, go down as interest rates are raised as this softens demand and weakens the money supply growth in an economy.
Central banks such as the European Central Bank have in the past used interest rate hikes as a monetary policy tool to bring inflation down in line with target levels.
But Erdogan said: "The reduction of interest rates is, unfortunately, I say this openly, still not at the point we want it to be," Erdogan said.
"If we cannot secure the fall in interest rates, if we cannot succeed here, then beware -- plenty of calamities await us. We must definitely deal with this," he added.
But Liam Carson, emerging Europe economist at London-based Capital Economics, said in a note the inflation data meant expected rate cuts were "looking less likely".
Economists say the Turkish central bank has limited room for manouevre as the president has previously indulged in repeated verbal assaults against the bank because of its reluctance to lower interest rates.
In recent months, it has opted to keep rates steady as inflation remains high. The one week repo rate is currently fixed at 8.0 percent, a level the bank left unchanged as its last meeting in September.
Inflation had been at its highest level for over eight years in April, reaching 11.87 percent before falling to 9.79 percent in July and then rising again.
Turkey is set apart "in a world where few countries are troubled by too-high inflation," said Inan Demir of Normura International.
"We see headline inflation climbing towards 11.5 percent over the coming two months, before declining in December due to supportive base effects," he added in a note.
The embattled Turkish lira lost 0.4 percent in value against the US dollar, rising to 3.58 lira to the greenback after 0900 GMT on Tuesday.