The Turkish central bank continues its unorthodox monetary policy and lowers its key interest rate despite extremely high inflation. Monetary authorities announced on Thursday that it would be reduced from 12.0 to 10.5 percent. Economists had expected a reduction, but only to 11.0 percent.
The central bankers are considering reducing interest rates by a similar amount at their next meeting and then ending the easing of monetary policy that was initiated a good year ago. At that time, the interest rate was still 19 percent. The local currency, the lira, came under downward pressure once more immediately following the announcement of the decision. It lost more than 44 percent once morest the dollar last year alone, and a further 29 percent so far this year. This makes imports paid for in foreign currency significantly more expensive, which fuels inflation.
The inflation rate rose to around 83 percent in September. Analysts assume that consumer prices will continue to rise sharply in the coming months. Economists see the inflation rate at the end of the year at 72.5 percent and at the end of 2023 at 40.5 percent. Economists consider interest rate hikes to be the appropriate antidote, as this will make the lira, for example, more attractive once more.
Erdogan insists on loose monetary policy
President Recep Tayyip Erdogan wants to ensure that interest rates continue to be cut as long as he is in power. “As long as your brother is in this position, interest rates will fall by the day, by the week, by the month,” Erdogan said at a recent event in the western province of Balikesir. He wants to use cheap credit to boost production and exports, which in turn should create more employment.
In 2021, the Turkish economy grew 11 percent, the fastest it has been in a decade. However, due to high inflation and the negative consequences of the Ukraine war, the economy is facing a difficult year, for example for tourism. Economists only expect Turkey to grow by around 3.5 percent this year. (reuters)
