Erdoğan’s statements were interpreted on social media as a signal of a return to the ‘Interest is the cause, inflation is the result’ approach.
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President Recep Tayyip Erdoğan, in his statement to the media on Friday after his visits to Kyrgyzstan and Hungary, said, “Hopefully, inflation will decrease along with interest rates. “Don’t worry about this,” he said.
“This is my logic in economics. “This is the information I received and learned as an economist.”
Erdoğan also said, “No one should doubt this. We will all see these declines in inflation in the last two months. “You know my approach,” he added.
“As of now, this sign of decline is showing itself. “I hope, without any hesitation, that we will see this decrease in inflation.”
Referring to the first ministerial period of the Minister of Treasury and Finance, Mehmet Şimşek, the President said, “Remember, when Mehmet Bey was the Minister of Finance, the interest rate was around 4-odd. Inflation also dropped to 5.6. “Now, hopefully, we will bring this to the agenda of our country again,” he said.
“With a stable fiscal policy and implementation of structural reforms, this positive trend will continue. “In addition, foreign economic conditions and developments in global markets will also affect Turkey’s economic situation,” said Erdogan, adding, “We will continue our economic steps with the same determination and discipline, taking into account all kinds of risks. I believe that next year we will remove inflation from our agenda and focus on new and large investments. “We are strengthening our economic defense against global crises and fluctuations and taking steps to protect our economic independence,” he added.
These statements of Erdoğan created controversy on social media and were interpreted as a signal of a return to the understanding of “interest is the cause, inflation is the result”.
The President’s opposition to interest rates has been known for many years.
Basing his understanding of economy on Islamic provisions, Erdoğan said, “We need to evaluate the fluctuations in the exchange rate within this framework. What is it, sir? We are reducing interest rates. Do not expect anything else from me. As a Muslim, I will continue to do whatever the scriptures require. This is the ruling.”
“Nas” is a term used in Islamic jurisprudence to describe Qur’anic verses and hadiths.
The “interest is the cause, inflation is the result” approach, which was formalized during Nurettin Nebati’s term as minister of finance and accepted as a heterodox economic approach, caused inflation to rise to triple digits in Turkey.
In classical economics, increasing interest rates is used as a measure against increasing inflation. The approach advocated by Erdoğan is frequently criticized because it is far from a scientific basis.
According to official figures, inflation exceeded 72 percent in 2022 due to the fact that interest rates were reduced in an inflationary environment. Inflation Research Group (ENAG) announced that inflation exceeded 137 percent.
Mehmet Şimşek, known for adopting orthodox economic policies in order to stop the sharply increasing inflation with the motto “Interest is the cause, inflation is the result”, was appointed again on June 4, 2023, and interest rates began to be increased again to combat inflation.
As inflation rates decreased in parallel with the increase in interest rates, Şimşek said, “Disinflation is becoming evident. Annual inflation decreased by 23.5 points in the last 3 months and reached 52 percent.”
