Turkey continues to swear by interest rate cuts, Turkish lira sinks deeper and deeper | Economy

Turkey continues to swear by interest rate cuts, Turkish lira sinks deeper and deeper | Economy
Turkey continues to swear by interest rate cuts, Turkish lira sinks deeper and deeper | Economy

According to the central bank, the interest rate cut is due to uncertainties about the growth of the global economy and geopolitical risks. Most analysts had not expected a rate hike.

President Recep Tayyip Erdogan’s Turkey has been going against standard economic theory for some time to combat sky-high inflation. The president argues that high interest rates lead to high inflation. But elsewhere in the world, central banks are raising interest rates after years of historically low interest rates. The interest rate hikes should cool the economy and thus quench inflation growth. After all, borrowing money becomes more expensive after an interest rate increase, and that should depress demand, so that prices rise less.

Erdogan had called for further rate cuts in June, after interest rates had remained unchanged for several months. The president says he prefers growth and exports over price stability. In that context, he continues to exert pressure on the central bank in Ankara.

This leads to the lira sinking deeper and deeper into the trough. Last year, the currency lost 44 percent in value against the dollar. Since January 1, the currency has already lost more than 27 percent.

Meanwhile, according to official figures, inflation has reached a record 80.2 percent year-on-year in August. However, independent research groups state that inflation is up to two times higher.

The article is in Dutch

Tags: Turkey continues swear interest rate cuts Turkish lira sinks deeper deeper Economy

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