Contrary to classical economic theories, the Turkish president believes that high interest rates favor inflation
Turkey’s central bank today cut its key interest rate from 14% to 13%, despite inflation reaching 80%.
The central bank, which justified its decision by citing “uncertainties about global growth and geopolitical risks”, had kept its interest rate steady since December after the Turkish president, Recep Tayyip Erdoganhad forced it to reduce it from 19% to 14% from August to December.
Contrary to classical economic theories, the Turkish president believes that high interest rates favor inflation.
However, his monetary policy, which is heavily criticized, led in 2021 to a 44% drop in the Turkish lira against the dollar. The Turkish currency further lost more than 25% of its value against the US currency. As a result of that collapse, inflation hit 79.6 percent in July over a year, according to official data, the highest in 24 years, just 11 months before the presidential election.
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