Erdogan determined to cut rates, build controversial canal

President Recep Tayyip Erdogan has vowed to forge ahead with Canal Istanbul and slash interest rates to single digit. 

Erdogan has always been firmly in favour of keeping interest rates low. However, in opposition to the president, last year the Central Bank raised interest rates to 19% in a bid to boost the lira and curb inflation. 

At a meeting of AK Party lawmakers in Ankara this week, Erdogan also stated his intention to speed up his controversial Canal Istanbul plan: a project that will involve digging a strait that will bisect a chunk of the city, offering an alternative route through the busy Bosphorus Strait and linking the Black and Marmara seas.

“We are determined to bring inflation, which has recently accelerated, down to single digits,” Erdogan said. “We are also determined to reduce interest rates to single digits.”

He added that the lira's deprecation had no economic basis.

In a few days, Turkey's Central Bank will hold its first rate-setting meeting under its new governor Sahap Kaycioglu, who was appointed earlier this month after Naci Agbal, who took up the position, was fired on March 20. Since Kaycioglu's appointment, the lira has weakened by 12% against the dollar.

Kavcioglu, a former AK Party lawmaker, has said he won’t be in a hurry to cut the rate from where it currently sits at 19%.

Canal plans accelerate

The multi-billion dollar Canal Istanbul project was first announced 10 years ago. Its popularity - and feasibility - has waxed and waned over the decade. 

However, last week it was thrust into the limelight again after 100 retired admirals raised their concerns about their project. The admirals say the project will impact a 1936 treaty that seeks to maintain peace and stability in the Black Sea region. 

However, Erdogan is undeterred. “We’ve completed preparations for Canal Istanbul to a great extent,” he said. “The tender will be held soon and we’ll break ground in the summer.”

The project would create a new city of 500,000 people, Erdogan said. It was not Turkey's intention to leave the treaty, he added.