Erdogan’s home loan incentives threaten to fan inflation
A further increase in already skyrocketing home prices appears inevitable in Turkey following Erdogan’s announcement of loan incentives, a move that many pundits see as pouring fuel on the inflation fire.
A loan package to encourage home sales announced by President Recep Tayyip Erdogan last week threatens to further stoke Turkey’s consumer inflation, which is already on course to hit an annual of 100% in the coming months.
Erdogan’s government has failed to outline a convincing program to curb inflation, relying instead on impetuous measures to stimulate growth as a means of soothing popular economic grievances ahead of elections next year. Housing and construction have been Erdogan’s favorite sectors, driving economic growth for years before hitting dire straits amid the country’s financial woes in the past several years.
On May 9, Erdogan unveiled a package of relatively cheap loans to encourage home purchases and prop up ailing construction companies. Yet the low- and middle-income masses had little to cheer for as the terms of the scheme make the loans affordable only to deep-pocketed buyers — not to mention the immediate spike in already skyrocketing home prices after the announcement of the package.
The government’s move comes at a time when the embattled Turkish lira has tumbled anew, fostering fresh inflationary pressures. Turkey’s annual consumer inflation hit 70% in April and is expected to soar further in the coming months. Should price increases continue at the same pace, annual inflation is likely to reach 100% in July. The government has virtually surrendered to inflation by discarding the central bank’s interest-rate tool as a means of reigning in prices. The bank has kept its policy rate at 14% since December after cutting it by 500 basis points over four months, heeding pressure from Erdogan who insists on the unorthodox view that high-interest rates cause high inflation.
