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Turkey’s inflation soars to 36 percent, highest in Erdogan era

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Turkey's annual inflation rate surged to 36.1 percent last month, its highest in the 19 years Tayyip Erdogan has ruled, laying bare the depths of a currency crisis engineered by the president's unorthodox interest rate-cutting.

In December alone, consumer prices took a rare step into double-digits, rising 13.58 percent, Turkish Statistical Institute data showed on Monday, eating deeper into the earnings and savings of Turks rattled by the economic turmoil.

The year-over-year CPI outstripped a median Reuters poll forecast of 30.6 percent with staples such as transportation and food – which took increasing shares of households' budgets during 2021 – rising even faster.

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Turkey's lira shed 44 percent of its value last year as the central bank slashed interest rates under a drive by Erdogan to prioritize credit and exports over currency and price stability.

On Monday it whipsawed down 5 percent then up 3 percent, before trading flat at 13.22 versus the dollar at 1500 GMT.

Some economists predict that inflation could reach as high as 50 percent by spring unless the direction of monetary policy is reversed. Goldman Sachs said it would remain above 40 percent for most of the year ahead.

“Rates should be immediately and aggressively hiked because this is urgent,” said Ozlem Derici Sengul, founding partner at Spinn Consulting in Istanbul.

The central bank was however unlikely to act, she added, and annual inflation “will probably reach 40-50 percent by March”, by when administered price rises would have been added into the mix, including a 50 percent minimum wage hike.

Turkey now has the eighth-highest inflation in the world, behind Zimbabwe and Argentina and ahead of Iran and Ethiopia, according to a Trading Economics listing.

Last year was the worst for the lira in nearly two decades, while the annual CPI was the highest since the 37.0 percent reading of September of 2002, two months before Erdogan's AK Party first took office.

But Erdogan's focus on Monday was on trade data which showed exports surged by a third to $225 billion last year.

“We have only one concern: exports, exports and exports,” he said in a speech, adding the trade data showed a six-fold rise in exports during his tenure as leader.

To support the local currency and replenish its depleted reserves, the central bank said on Monday it had asked exporters to sell 25 percent of their hard-currency revenues to the bank for lira.

“We don't go out”

Erdogan, a self-declared enemy of interest rates, overhauled the central bank's leadership last year. The bank has slashed the policy rate to 14 percent from 19 percent since September, leaving Turkey with deeply negative real yields that have spooked savers and investors.

The subsequent accelerating surge in prices and drop in the lira have also upended household and company budgets, scuttled travel plans and left many Turks scrambling to cut costs. Many queued last month for subsidized bread in Istanbul, where the municipality says the cost of living is up 50 percent in a year.

“We don't sit with our friends in a cafe and drink coffee any more,” Mehmet, 26, a university graduate, said as he did his job as a pollster in Istanbul.

“We don't go out, just from home to work and back again,” he said, adding that he was buying smaller meal portions and believed inflation was higher than official data showed.

The central bank has argued that temporary factors had been driving prices and forecast a volatile course for inflation, which – having been around 20 percent in recent months and mostly double-digits over the last five years – it said in October would end the year at 18.4 percent.

Sengul suggested that, with Monday's data, that argument had run its course.

“This reflects a vicious cycle of demand-pull inflation, which is very dangerous because the central bank had implied the price pressure was from cost-push (supply constraints), and that it couldn't do anything about it,” she said.

Reflecting soaring import prices, December's producer price index rose 19.08 percent month-on-month and 79.89 percent year on year. Annual transportation prices soared 53.66 percent while the food and drinks basket jumped 43.8 percent, the CPI data showed.

The economic turmoil has also hit Erdogan's opinion polls ahead of a tough election scheduled for no later than mid-2023.

The lira touched a record low of 18.4 against the dollar in December before rebounding sharply two weeks ago after state-backed market interventions, and after Erdogan announced a scheme to protect lira deposits against currency volatility.

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Saudi Arabia’s Khalid bin Salman: We strive to bring Yemen within GCC system

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Saudi Arabia’s Deputy Minister of Defense Prince Khalid Bin Salman said on Tuesday that the Kingdom and Gulf countries are striving to bring Yemen within the GCC system so that its people can enjoy security and stability.

“The Kingdom and the Arab Gulf states seek to bring Yemen within the GCC system so that its people can enjoy security, stability and development like other Gulf nations. However, the Houthi militias chose terrorism and destruction and used the people of Yemen as firewood that serves the Iranian regime’s agenda. We assure the people of Yemen that they are from us and we are from them and we will always be on their side,” the Prince said in a tweet.

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He added that Houthi militias employ “false promises and repetitive illusions” to “deceive” Yemenis and “recruit them into a deadly war.”

“The time has come for Yemeni wisdom, and the wise men of Yemen, to forsake those illusions and promises, and to preserve the free people of Yemen from the tampering of terrorist militias,” the Prince said.

Prince Khalid’s statements come a day after the UAE’s capital Abu Dhabi was rocked on Monday when drone attacks led to a fire breaking out and resulted in the explosion of three petroleum tankers, killing three people and wounding six others. There was also another fire that broke out in the area of the new construction site of Abu Dhabi International Airport.

Yemen’s Houthi militia claimed responsibility for the attack saying it conducted an operation “deep in the UAE.”

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US worries Russian troop arrival could lead to nuclear weapons in Belarus

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The US is worried that the arrival of Russian troops in Belarus for exercises could become a permanent presence that might lead to nuclear weapons into the country, a senior State Department official told reporters Tuesday.

Russian military forces were moving into Belarus after Moscow-allied strongman Alexander Lukashenko announced Monday that the two countries will conduct military exercises next month.

The move, which came without customary advance notice being provided countries in the region, added to rising tensions with the West over the possible Russian invasion of Ukraine, which borders Belarus.

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The US official, speaking on grounds of anonymity, said the size of the Russian force arriving in Belarus was “beyond what we'd expect of a normal exercise.”

“The timing is notable and, of course, raises concerns that Russia could intend to station troops in Belarus under the guise of joint military exercises in order potentially to attack Ukraine,” the official said.

The official said that changes to the Belarus constitution in a referendum next month could allow the Russian military presence to become permanent.

“These draft constitutional changes may indicate Belarus plans to allow both Russian conventional and nuclear forces to be stationed on its territory,” the official said.

That would represent a “challenge to European security that may require a response,” the official said.

Belarus also borders NATO-member Poland.

“Over time, Lukashenko has relied more and more on Russia for all kinds of support. And we know that he doesn't get that support for free,” the US official said.

“It's clear Russia is preying on Lukashenko's vulnerability and calling in a little bit of accumulated IOUs,” the official said.

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North Korea tested tactical guided missiles in fresh sign of evolving arsenal

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North Korea fired tactical guided missiles on Monday, state media KCNA said on Tuesday, the latest in a series of recent tests that highlighted its evolving missile programs amid stalled denuclearisation talks.

The missile test was the North's fourth in 2022, with two previous launches involving “hypersonic missiles” capable of high speed and manoeuvring after lift-off, and another test on Friday using a pair of SRBMs fired from train cars.

The UN Security Council is likely to meet behind closed-doors on Thursday on the continued missile launches, diplomats said. The US, Britain, France, Ireland and Albania made the request on Tuesday for a Council discussion.

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South Korea's military said on Monday that North Korea launched two short-range ballistic missiles (SRBMs) from an airport in its capital, Pyongyang, which flew about 380 km (236 miles) to a maximum altitude of 42,000 meters (137,800 feet).

The Academy of Defence Science conducted a test of tactical guided missiles from the country's west, and they “precisely hit an island target” off the east coast, the official KCNA news agency said on Tuesday, without elaborating.

“The test-fire was aimed to selectively evaluate tactical guided missiles being produced and deployed and to verify the accuracy of the weapon system,” KCNA said.

It “confirmed the accuracy, security and efficiency of the operation of the weapon system under production.”

The unusually rapid sequence of launches has drawn US condemnation and a push for new UN sanctions while Pyongyang warns of stronger actions, raising the spectre of a return to the period of “fire and fury” threats in 2017.

US Special Representative for North Korea Sung Kim urged Pyongyang to “cease its unlawful and destabilising activities” and reopen dialogue, saying he was open to meeting “without preconditions,” the State Department said after a call with his South Korean and Japanese counterparts.

South Korea's defence ministry said on Tuesday that it takes all North Korean missile launches as a “direct and serious threat,” but its military is capable of detecting and intercepting them.

UN spokesman Stephane Dujarric also called the North's tests “increasingly concerning” during a briefing, calling for all parties to return to talks to defuse tension and promote a “very verifiable denuclearisation of the Korean Peninsula.”

‘Show of force’

North Korea used Pyongyang's Sunan airport to test-fire the Hwasong-12 intermediate-range ballistic missile (IRBM) in 2017, with leader Kim Jong Un in attendance.

North Korea has not tested its longest-range intercontinental ballistic missiles (ICBMs) or nuclear weapons since 2017, as a flurry of diplomacy with Washington unfolded from 2018. But it began testing a range of new SRBM designs after denuclearisation talks stalled and slipped back into a standoff following a failed summit in 2019.

Kim did not attend the latest test.

A photo released by KCNA showed a missile rising into the sky above a cloud of dust, belching flame.

Kim Dong-yup, a former South Korea Navy officer who teaches at Seoul's Kyungnam University, said North Korea appears to have fired KN-24 SRBMs, which were last tested in March 2020 and flew 410 km (255 miles) to a maximum altitude of 50,000 meters (164,042 feet).

The KN-24 resembles the US MGM-140 Army Tactical Missile System (ATACMS) and is designed to evade missile defences and carry out precision strikes, he said.

“The North seems to have already deployed and begun mass production of the KN-24,” Kim said, referring to the KCNA report.

“But essentially, the test could be another show of force to underline their recent warning of action.”

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