Erdogan Bashes Interest Rates, Saying They Bring Inflation

(Bloomberg) -- Turkish President Recep Tayyip Erdogan resumed his criticism of high interest rates and their impact on Turkey’s economy, and reiterated his unorthodox view that higher borrowing costs are responsible for inflation.

The comments mark the first time the Turkish leader has criticized economic management since the two top policy makers were replaced in November, when Naci Agbal was appointed central bank governor and Erdogan’s son-in-law resigned as finance minister.

“We’re being praised for high interest rates,” Erdogan said. “We’re being praised for bankrupting many of our companies.”

Even so, the president appeared to be treading a more cautious line by focusing his attacks on commercial banks for “exploiting” businesses while airing only a veiled criticism of officials. He also emphasized that price stability is a top priority for 2021, although his prescription for achieving it -- lower borrowing costs -- is the opposite of what mainstream economic theory would suggest.

Erdogan Sweet Talks Markets With Return to Orthodoxy -- for Now

“Whether they listen or not, I’ll continue my struggle,” Erdogan told a group of Turkish businessmen in televised comments on Friday. “There is one thing I believe in: we can’t achieve anything with high interest rates.”

The remarks come before Agbal convenes the monetary policy committee for a monthly meeting on Jan. 21. The new governor has raised borrowing costs by a cumulative 675 basis points in two meetings. The moves were supported by other regulators rolling back restrictive polices adopted over the last two years under former Treasury and Finance Minister Berat Albayrak.

Erdogan said “market-friendly” decisions made since November have started bearing fruit as a stronger lira and lower sovereign risk helped the government narrow its budget gap.

The lira retreated 1.7% against the dollar as of 5:30 p.m. in Istanbul, its biggest decline since Nov. 23.

(Updates with Erdogan comments on companies in third paragraph.)