ANKARA, TURKEY (AP) – Turkey’s central bank yesterday lowered its key interest rate despite inflation surging to nearly 80 per cent and making it difficult for people to buy what they need, falling in line with the unorthodox economic views of the country’s president.
In a statement following a monetary policy committee meeting, the bank said it decided to reduce the policy rate from 14 per cent to 13 per cent.
President Recep Tayyip Erdogan has pressured the bank into lowering borrowing costs in a bid to boost economic growth, investment and exports, insisting that interest rate hikes cause inflation.
That contradicts established economic thinking, with rate increases the traditional tool to target inflation.
Central banks worldwide are raising interest rates as rising food and energy prices drive inflation to decades-high levels.
Even then, inflation figures in the United States (US) of 8.5 per cent, the United Kingdom of 10.1 per cent and the 19-country euro area of 8.9 per cent come nowhere close to Turkey’s eye-popping rate of nearly 80 per cent, with skyrocketing food, housing and energy prices hitting people hard.
Turkey’s central bank made a series of interest rate cuts last year despite high inflation, dropping rates by five percentage points before pausing in January. The cuts triggered a currency crisis and further fueled rising consumer prices, while Russia’s invasion of Ukraine and soaring energy costs aggravated the situation.
The Turkish lira weakened by nearly one per cent against the dollar shortly after yesterday’s central bank decision.
Erdogan, visited Ukraine yesterday for the first time since the war started, recently defended his policy to lower interest rates, insisting that it had helped save 10 million jobs. He has promised to lower inflation, asking for the public to show patience.