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Turkey has preferred a high growth rate to curbing the inflation rate by implementing strict measures, the finance minister is quoted as saying.
"We could have sharply increased the interest rate in order to lower the foreign exchange rate. But then production would have been negatively affected by that," Nureddin Nebati said during a presentation at the ruling Justice and Development Party's (AKP) three-day consultative meeting in the capital city of Ankara, Abdülkadir Selvi, a columnist for the pro-government daily Hürriyet, wrote today (June 6).
"We were at a crossroads. We have preferred to grow with inflation. Otherwise, we could have taken very drastic measures to lower the inflation rate. We would increase the interest rate sharply. And then the production would stop.
"We have preferred production and growth. Except for those with low-income, manufacturing companies and exporters profit from this system. The wheels are turning."
By saying this, Nebati contradicted President and AKP Chair Recep Tayyip Erdoğan's unconventional theory that high interest rates cause high inflation. For years, he has defended lower interest rates in order to keep both inflation and foreign exchange rates from rising.
However, the country's inflation rate rose to a 24-year high of 73 percent in May, even according to the widely disputed official figures. A group of economists calculated that the inflation rate was over 160 percent last month.
The Turkish lira has also plunged to 16.57 against the US dollar after a rapid deterioration over the past month, nearing its record-low in December.
However, Nebati asserted that the "foreign exchange-protected lira deposit" system helped bring foreign exchange rates under control.
After the tool was introduced in December, the lira sharply gained value against the dollar, but it has gradually weakened since then.
Yet, the minister said they will continue with the system. "As of last Friday, the total cost of the foreign exchange-protected deposits to the budget was 21.1 billion lira. If we hadn't deployed this system, our loss would have been 411 billion lira."
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