Turkish President Tayyip Erdogan speaks to the media after a cabinet meeting in Ankara, Turkey, on December 8, 2021.
Murat Cetinmuhurdar | Reuters
The Central Bank of Turkey voted on Thursday to lower the country’s key interest rate, which is the weekly repo rate, from 15% to 14%.
Due to President Recep Tayyip Erdogan’s refusal to raise interest rates, the inflation rate in this country of 84 million people is now over 21% and has been steadily rising, which means Turks earning local wages The purchasing power of has declined. Year-to-date, the lira has depreciated 50% against the U.S. dollar.
Investors and economists have been desperately calling for Erdogan to change course, but so far, he has insisted on his unusual belief that raising interest rates will increase inflation, not cool it. This is a widely accepted economic principle.
This move follows a series of long-term interest rate cuts by the central bank, which the market believes has nothing to do with Erdogan, who calls interest rates the “mother of all evils.”
The Central Bank of Turkey previously announced that it will directly intervene in the foreign exchange market on Monday, selling US dollars to support the lira. But given that its foreign exchange reserves are already low, analysts doubt the effectiveness of this strategy.
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