ANKARA, Turkey — Turkey’s central bank cut its key interest rate on Thursday, despite inflation soaring to nearly 80% and making it difficult for people to buy what they need, in line with the country’s president’s unorthodox economic views.
In a statement following a meeting of the monetary policy committee, the bank said it had decided to cut its key rate from 14% to 13%.
President Recep Tayyip Erdogan has pressured the bank to cut borrowing costs in an effort to boost economic growth, investment and exports, stressing that interest rate hikes are driving inflation. This contradicts established economic thinking, where rate hikes are the traditional tool for tackling inflation.
Central banks around the world are raising interest rates as rising food and energy prices drive inflation to decades-high levels. Even then, inflation rates in the US of 8.5%, the UK of 10.1% and the 19-nation Eurozone of 8.9% are nowhere near Turkey’s dazzling rate of nearly 80%, with skyrocketing food, housing and energy prices are hitting people hard.
Turkey’s central bank made a series of rate cuts last year despite high inflation, cutting interest rates by 5 percentage points before taking a break in January. The austerity measures sparked a currency crisis and further pushed consumer prices up, while the Russian invasion of Ukraine and rising energy costs exacerbated the situation.
Shortly after Thursday’s central bank decision, the Turkish lira weakened nearly 1% against the dollar.
In the capital Ankara, shoe store owner Abdullah Erbecer said the weakening currency has hurt his business.
“What we used to import for 10 lira, we now have to pay 50 lira,” he said. “I haven’t sold anything all morning.”
Murat Kocak, an insurance broker, questioned the central bank’s decision, saying it “will negatively impact us”.
“People can’t afford insurance. It has become too expensive,” he says.
Erdogan, who visited Ukraine on Thursday for the first time since the start of the war, recently defended his policy to cut interest rates, claiming it had helped save 10 million jobs. He has pledged to cut inflation and is asking the public to show patience.
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