The cheap mortgages that Erdogan raises will worsen the monetary chaos
Tayyip Erdogan’s latest anti-inflation tactic will do more harm than good. Turkey’s leader announced plans on Monday to curb the rise in housing prices, which have doubled in the last year, according to an index. Builders will get three years of cheap credit for home projects as long as they maintain prices for one year. That might help. But Erdogan also promised cheap loans to some buyers. In annual terms, the 11% rate he proposes is well below the central bank’s worryingly low 14% reference rate.
These handouts are strange given the role cheap credit plays in the current monetary chaos. Inflation reached 70% in April, following a series of rate cuts instigated by Erdogan. The Fed’s tightening has increased pressure on the lira, which is trading at 15 to the dollar, approaching its December 18 high. That weakness will fuel inflation. Cheap mortgages only make things worse.
