Erdogan calls on Turks to help shore up economy

President Recep Tayyip Erdogan has called on Turks to cash in their gold and invest their savings to shore up financial markets roiled by his abrupt decision to sack the central bank chief.

The lira currency has slid nearly 10 per cent and stocks and bonds have fallen sharply since the dismissal of Naci Agbal, who had raised interest rates to combat double-digit inflation. The new governor Sahap Kavcioglu shares Erdogan’s bias against high interest rates, and concerns that Turkey will soon lower borrowing costs sent markets into a tailspin.

“I want my citizens to invest foreign currency and gold kept at home, which is our national wealth, in various financial instruments to benefit our economy and production,” Erdogan said. Financial institutions that comply with Islamic tenets in particular provide customers with favourable returns, he added.

In his first comments since sacking Agbal, Erdogan did not mention the former governor. He reiterated his confidence in the Turkish economy and urged international investors “to trust Turkey’s strength, potential and future”.

“Fluctuations in the markets in the last few days certainly do not reflect the Turkish economy’s fundamentals, true dynamics or its potential and future,” said Erdogan, during a speech at a ruling party congress on Wednesday. “We have repeatedly proven our resistance to any kind of shock with our dynamic economic structure, fiscal discipline, commitment to a free-market economy,” the president added.

In his speech, Erdogan hinted that he remained focused on economic growth. “We will reach much better places by expanding the Turkish economy based on investment, production, employment and exports in the coming period,” he said.

Similar calls for domestic investment were made during previous periods of economic tumult, including in a 2018 currency crisis sparked by fears about Erdogan’s foreign and economic policies.

Turks have stockpiled gold “under the mattress” worth about 40 per cent of gross domestic product, according to Bloomberg. Dollar and euro savings also help Turks hedge against inflation and the lira’s decline, which has lost 40 per cent of its value since a 2018 currency crisis.

Foreign investors have said the latest upheaval at the central bank, less than five months into Agbal’s term, have erased hopes that the governor can pursue policies free of political pressure. Kavcioglu became the fourth Turkish central bank governor in less than two years.

Kavcioglu told Turkish bankers on Wednesday that he would continue his
predecessor’s simplified interest rate policy, with the one-week repo
rate remaining the benchmark gauge, according to the state-run Anadolu
news agency. He also said he was committed to achieving the central
bank’s year-end inflation target of 5 per cent.

Economists have urged the government to outline how it will curb inflation under Kavcioglu, who has argued that high interest rates cause inflation, a view that contradicts mainstream economic thinking. Economists say the easiest way to calm the currency and slow inflation would be to raise interest rates — thus keeping prices of imported goods in check.

“Turkey’s economy faces major problems, from the budget deficit to inflation to the current account deficit to the exchange rate, but the biggest problem is the credibility gap. As long as [Erdogan] can’t fill that, none of these plans are taken seriously,” said Kerim Rota, a former banker who is now a deputy chair of the centre-right opposition Future party. He called Erdogan’s latest comments on the recent financial volatility “weak and insufficient”.