Cheap home loans raise inflation ceiling in Turkey

Reuters
Reuters

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

LONDON (Reuters Breakingviews) – Tayyip Erdogan’s latest inflationary ploy will do more harm than good. Turkey’s president on Monday announced plans to rein in property price growth after an index suggested they had doubled over the past year. Construction companies will get three years of cheap credit for housing projects on the condition that they hold prices for one year. It might help. However, Erdogan also promised cheap loans to some home buyers. On an annualized basis, the proposed 11% rate is well below the central bank’s worrisome benchmark lending rate of 14%.

The donations are odd given the role cheap credit plays in Turkey’s current monetary mess. Inflation hit 70% in April after a series of rate cuts initiated by Erdogan. The US monetary tightening has put additional pressure on the lira, which is now trading at 15 to the dollar, heading back towards the December high of 18. This weakness will fuel inflation. Cheap home loans only make things worse. (By Dasha Afanasieva)

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