- Inflation in Turkey continues to rise and reached a level of almost 70 percent in April.
- Turkey’s central bank has raised the policy interest rate to 50 percent, but that is not yet enough to slow inflation.
- Due to extreme inflation, the purchasing power of employees who are paid in Turkish lira is evaporating rapidly.
- Also read: Turkey supports Rutte as new NATO chief – these 3 countries are still obstructive
The Turkish central bank has not yet managed to tame the rampant inflation. In April, prices rose faster again by almost 70 percent year on year than in the previous month.
Consumer prices in the country rose by 69.8 percent last month, Turkey’s National Statistics Agency reported on Friday.
Inflation in Turkey, which is among the highest in the world, was already 68.5 percent in March.
Inflation in Turkey
The Turkish central bank began raising the policy rate in June 2023, gradually bringing it from 8.5 percent to 50 percent, after Turkish President Recep Tayyip Erdogan dropped his objections to higher rates.
Erdogan saw no point in the standard economic practice of raising interest rates to reduce inflation and fired a number of central bank directors who thought otherwise.
Turkish central bank interest rates continue to lag behind inflation
Policy interest rate of the Turkish central bank
For the time being, it appears that the Turkish central bank is continuing to lag behind, as the policy interest rate of 50 percent is considerably lower than the inflation level of almost 70 percent. The dilemma here is that the high interest rates also hurt considerably in an economic sense, because it makes borrowing more expensive.
At the same time, extremely high inflation is having a disruptive effect on the economy, because money evaporates in value so quickly that employees who are paid in Turkish lira try to convert it as quickly as possible into assets that retain their value better.
High inflation is also triggering a wave of wage increases. For example, the minimum wage in Turkey was increased by almost half again this year.
The weak Turkish lira, which makes importing goods from abroad more expensive, is also driving up inflation. This year the currency has fallen 9 percent in value against the dollar. Since 2021, the lira has already lost almost 80 percent of its value.
The new central bank governor Fatih Karahan, who was appointed in February, already expressed his concerns about high inflation in last week’s interest rate decision. However, he kept the interest rate unchanged.
Turkey’s central bank expects inflation to peak this month before price increases cool to below 40 percent by the end of the year.
The Turkish population itself is much more gloomy about inflation. According to a study by Koc University and pollster Konda, Turks see an inflation rate of 96 percent at the end of the year.
