Turkey’s central bank cuts interest rates despite soaring inflation

The central bank, reducing the one-week repo auction interest rate from 14 percent. to 13 percent, based on the “weakening effect of geopolitical risks”.

“It’s just madness – when inflation reaches 80 percent. and rising,” Timothy Ash, an economist at BlueBay Asset Management, noted in an emailed commentary. “I don’t think anyone expected that.”

Within moments of the announcement Turkish lira lost one percent of its value against the dollar.

Turkey’s monetary policy decision contrasts with the approach most other governments have taken to combat a spike in consumer prices caused by Russia’s invasion of Ukraine.

The war has driven up food and energy prices and forced central banks to raise borrowing costs, even as economic growth remains weak.

But the president of Turkey Recep Tayyip Erdogan holds the unorthodox belief that high interest rates cause inflation, not stop it.

Since 2019, he has fired three central bank governors as he tried to steer the economy on a more conventional course.

The Turkish government has approved several alternative anti-inflation measures, but most economists dismiss them as insufficient or too complicated and expensive to implement.

These include limiting bank lending and offering state guarantees to ensure that Turkish deposits do not depreciate too much over time.

By the way, Turkey began to use its accumulated foreign exchange reserves in an effort to support the lira.

Copying the text of this news is prohibited without the written consent of ELTA.

Leave a Comment

Your email address will not be published.