Turkey: Erdogan says he accedes to Simsek’s orthodox monetary policy

Turkish President Recep Tayyip Erdogan said that he has acceded to Finance Minister Mehmet Simsek’s thinking on monetary policy and expects steps to be taken with the Central Bank to calm inflation, despite maintaining his personal opinion on lower interest rates.

“Of course, some friends should not fall into the error of ‘is the president going to make a serious change in interest policy’. I am the same,” he told a group of journalists that accompanied him to Azerbaijan earlier this week. 

“But on the point of our treasury and finance minister's current thinking, we of course easily yielded to him to take the steps here quickly and together with the Central Bank. We said ‘good luck’, and in this way, we also declared our determination to reduce inflation to single digits.”

Since 2021, Erdogan has run an unorthodox monetary policy that depended on low interest rates and strong credit growth, resulting in runaway inflation and depletion of Turkey's foreign reserves.

However, after securing a third presidential term last month, Erdogan appointed Simsek, a darling of the markets with strong economic credentials, as finance minister. He also appointed Hafize Gaye Erkan as the country’s first-ever female governor of the Central Bank.

“We will of course strive to strengthen our finance sector. We continue and will continue to seek resources in the financial sector,” Erdogan said.

'On the point of our treasury and finance minister's current thinking, we of course easily yielded to him to take the steps here quickly and together with the Central Bank'

- Recep Tayyip Erdogan

“But the whole point is now let's make the financial management stronger, and by making the financial management stronger, let's lower inflation once again.”

Erdogan also said that he chose Erkan after Simsek had advised him to do so, and he also conveyed his wishes to her and Simsek on his expectations for the future.

Sources on Tuesday told Middle East Eye that Simsek convinced Erdogan to raise interest rates after a two-and-a-half-hour-long meeting.

MEE also reported that he was assisted by Erdogan’s son-in-law Selcuk Bayraktar and his older brother Haluk, who jointly run the renowned drone-making firm Baykar and tried to persuade the president that he was wrong on low interest rates and he needed Simsek.

Sources told MEE earlier this month that Simsek proposed to Erdogan an 18-month time frame where he would gradually increase benchmark interest rates from 8.5 percent to as high as 25 percent.

A source familiar with Erdogan’s conversations with Simsek said the president agreed to give him whatever he required to fix the economy.

“Simsek told him that he would work with people that the government blacklisted in recent years,” the source said. “And Erdogan said it wouldn’t be a problem.”