High growth, high inflation: The Turkish economy is on shaky foundations

In Turkey, prices are rising rapidly, but interest rates are falling. The economy is growing, but the middle class is impoverished. The question is how far President Erdogan’s “new economic model” will take him.

DTurkey’s central bank has cut interest rates three times since August, despite soaring inflation of 85 percent. Grocery prices have increased by 100 percent, and house prices in Istanbul have risen by 212 percent over the past year. Minimum wages have been raised three times this year to keep up with spiraling prices. It’s not just low-wage earners who notice this: “As governor, I also feel the pressure when prices double or triple,” says governor Okay Memis in the eastern Anatolian province of Erzurum.

The central bankers in Ankara are obviously not impressed at all. On Thursday they lowered the key interest rate again, by 1.5 percentage points from 10.5 to 9 percent. But that should be the temporary end of the interest rate cuts. Months ago, President Recep Tayyip Erdogan announced that interest rates would drop to single digits. And what Erdogan says is happening in Turkey. Only the inflation rate has not kept up to date. That’s why the President has replaced senior officials in the Statistics Office. Most recently in the past week. This has not strengthened trust in the integrity of the office and the reliability of its data.