The Turkish Central bank announced on Thursday that it would once again lower its main key rate by 1.5 points from 10.5% to 9%. This is the fourth consecutive cut in Turkish key rates as inflation continues to climb, reaching 85.5% year on year in October, the highest since 1998.

At a time when the US Federal Reserve and the European Central Bank have been raising their key rates for several months, Turkish President Recep Tayyip Erdogan is asking his central bank to lower its rates. The latter had warned that he wanted to see “single-digit rates by the end of the year” 2022. This Thursday, the Turkish monetary institution lowered, for the fourth consecutive month, its main key rate, the reducing from 10.5% to 9%. Last year, Turkish interest rates had already fallen from 19% in September 2021 to 14% in December. Remained stable between January and July 2022, they have been lowered again by the central bank each month since August, while the country is experiencing high inflation.

However, this should be the last time. The Council of the central bank has, in fact, estimated, this Thursday, that the key rate has arrived “at a sufficient level in view of the growing risks concerning global demand”, according to a press release from the institution which has therefore “decided to put an end to the cycle of lower interest rates which began in August”.

Erdogan against economists

If the Turkish Central Bank has persisted in maintaining such a monetary policy, contrary to the decisions of other central banks, it is because President Erdogan believes that high interest rates promote inflation. Moreover, according to the Head of State, lowering them amounts to encouraging growth, employment and exports to the detriment of price stability. Especially since Turkey has favored in recent years an economic model which is largely based on consumption and investment encouraging vast real estate projects, and which would therefore be undermined by a rise in interest rates.

The Turkish head of state regularly promises that the country will “overcome” the problem of inflation after the new year. Last September, the Turkish Central Bank justified the current situation by “uncertainties about global growth and geopolitical risks”. “The process of disinflation will begin with the restoration of an environment of peace in the world and the disappearance of the basic effects of inflation”, she had already assured last June.

A choice of heterodox monetary policy by the Turkish Central Bank which has contributed to causing the Turkish lira to fall by 28.5% since January 1, 2022. The currency had already fallen by 44% in 2021.



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