Turkey’s central bank cut its key interest rate for a fourth consecutive month on Thursday to single digits!
The contrarian monetary policy demanded by President Erdogan despite the country’s high inflation rate.
Tweet on turkish lira inflation
Turkey's central bank cuts rates again, for the fourth consecutive time in row for 150 basis points to 9% and calls for an end of rate cut cycle that started in August!
— The_Journalbiz (@the_journalbiz) November 24, 2022
Chart on Turkish lira devaluation across the 5 year cycle
The bank’s monetary policy committee said it cut its benchmark interest rate by 1.5 percentage points to 9%.
Erdogan has demanded lower rates as part of an unorthodox strategy to encourage economic growth
- Turkey plunged into a currency crisis last year
Turkey was plunged into a currency crisis last year after the central bank implemented a series of rate cuts at the urging of Mr. Erdogan, who favors lower rates as part of an unorthodox strategy to encourage economic growth. The crisis wiped more than half the value off the lira and pushed millions of Turkish people closer to poverty.
Mr. Erdogan’s government has also said that rate cuts would eventually lead to lower inflation, contrary to what has been observed historically in global economics. Central banks throughout the world have been raising interest rates this year to calm rampant inflation resulting from high energy prices, global supply-chain disruptions and Russia’s invasion of Ukraine.
- Turkey’s inflation rate is above 88%, according to the state statistics agency, the seventh highest in the world.
while Independent economists at ENAG, a research group that studies inflation in Turkey, say the actual rate of inflation is likely more than 185%. Central banks usually raise interest rates to calm inflation and lower them to encourage growth.
Given the Turkish central bank’s unusual approach, many entities in the Turkish banking system haven’t passed on the lower interest rates to customers due to high inflation, according to banking analysts.