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Former finance minister slams Erdoğan over rate hike, demanding an explanation to the nation

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A former economy minister lambasted Turkish President Recep Tayyip Erdoğan on Friday after the president described an aggressive repo rate hike by the central bank a day earlier as a bitter pill to be swallowed to reduce inflation.

“Mr. Erdoğan, you said high interest rates, high inflation, poor management and the damaging of the nation’s financial resources would amount to ‘high treason,’ and you again said that ‘high interest rates cause inflation’,” said Ali Babacan, a former finance minister and chair of the newly founded Democracy and Progress Party (DEVA).

 “You owe the nation you impoverished an explanation,” Babacan said.

“We are aware that we must take some bitter pills if necessary at this at this point in time. I’m assessing yesterday’s rate hike in this context,” Erdoğan said on Friday in a speech to business leaders in Istanbul. He also said he believed declining inflation would stabilize the lira while repeating his unorthodox view that interest rates cause inflation.

“Our real target is to first bring inflation down to single digits as soon as possible, then to the levels in our medium-term targets, and to ensure that interest rates come down in line with this,” the president said.

Turkey’s central bank raised the one-week repo rate by 475 basis points to 15 percent on Thursday in a bid to boost the struggling lira.

The decision came after Erdoğan last week pledged reforms and a new era in the administration of the economy to lure foreign investment.

The bank’s policy committee said the step would lower double-digit inflation, reverse a harmful dollarization trend and help it rebuild depleted foreign reserves.

The rate hike, the sharpest in more than two years, could support the lira after a series of record lows. However, it could also hinder economic recovery from coronavirus fallout.

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