Turkish President Recep Tayyip Erdoğan has reiterated his unconventional hypothesis that reducing interest rates will lead to lower inflation, a day before the country's central bank is expected to meet for an interest rate decision.
Addressing members of his ruling Justice and Development Party (AKP) in parliament on Nov. 17, Erdoğan said that he can't walk alongside those defending interest rates.
"Interest rates are the cause and inflation is the result. Our friends who defend interest rates should not be offended, but I can't walk together with those defending interest rates," Erdoğan said.
"What's happening to our friends?" he asked, potentially referring to Treasury and Finance Minister Lütfi Elvan's earlier remarks on tackling inflation.
"We will remove this interest burden from our people's shoulders. I will continue my struggle against interest rates as long as I'm in this position," he added.
After the parliamentary group meeting, Erdoğan claimed that Turkey's central bank is independent.
"Isn't the central bank independent? Let it decide independently," he told reporters.
His remarks come at a day that Turkey's lira hit a record low on worries about monetary policy missteps.
After falling almost 3% on Nov. 16, the lira slipped further to 10.56 to the dollar, bringing 2021 losses to 28% - the worst among EM peers.
Bowing to political pressure, the central bank is seen cutting the policy rate by 100 basis points to 15% on Nov. 18, which would see the rate down by 400 bps since September, while inflation surges to almost 20%.
Erdoğan has replaced several central bank chiefs and members in his drive to lower rates in the hopes it will spur economic growth.
"After one further 100bp rate cut at the November meeting, the central bank will likely stop its front-loaded easing cycle, at least until the year-end," Muhammet Mercan, chief economist - Turkey at ING, told Reuters, citing moderation in some core inflation indicators among others.