Economists believe that raising interest rates is the appropriate antidote to high inflation.
(Photo: Reuters)
Istanbul Despite inflation escalating in Turkey, the central bank unexpectedly cut interest rates, shocking the markets. The monetary authorities decided on Thursday to lower the key monetary policy rate by a full point to 13 percent.
The reason given was that growth must be supported. However, inflation has continued to skyrocket of late. In July, it reached 79.6 percent, the highest level in 24 years. In such a situation, loosening the interest rate reins contradicts conventional economic doctrine.
Such an unorthodox approach is supported by the influential Turkish President Recep Tayyip Erdogan, who describes himself as an enemy of interest rates.
None of the experts interviewed by Reuters had an interest rate cut on their radar – also because the monetary watchdogs had kept their feet still in the past seven months. The national currency, the lira, slipped after the interest rate shock: the dollar rose by around one percent to 18.13 lira.
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The Turkish currency is thus less than two percent above its record low reached in December. Behind the surge in inflation in Turkey is also the ongoing devaluation of the national currency, which makes imports more expensive. Added to this are rising oil and commodity prices as a result of the Russian war against Ukraine.
More: Turkey could become Europe’s new gas hub – but can Erdogan be trusted?