Turkey’s central bank cuts interest rates, sending lira to record low

Turkish President Tayyip Erdogan speaks to the media after a cabinet meeting in Ankara, Turkey, December 8, 2021.

Murat Cetinmuhurdar | Reuters

Turkey’s central bank on Thursday voted to cut the country’s key interest rate, the one-week repo rate, from 15% to 14%.

Inflation in the country of 84 million people now stands at more than 21% and is steadily increasing as President Recep Tayyip Erdogan refuses to raise the exchange rate, meaning buying power for local Turkish salaried Has dropped. The lira has lost 50% of its value compared to dollars years to date.

Investors and economists have been urging Erdogan to go back, but so far he has stuck with his unusual belief that higher rates exacerbate inflation, rather than cool it down. , as well as generally accepted economic principles.

The move follows a series of rate cuts from the central bank, which is seen by markets as not independent of Erdogan, who has called interest rates “the mother of all evil”.

Turkey’s central bank earlier announced it would intervene directly in the foreign exchange market on Monday, selling dollars to prop up the lira. But with foreign exchange reserves already low, analysts doubt this strategy will work.

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Emma James

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