Turkey’s central bank cuts interest rates by massive amid 83% inflation


Turkey’s central bank cut interest rates for a third straight month, the biggest drop this year despite sky-high inflation that is squeezing people’s finances as it follows President Trump’s unorthodox economic views. President Recep Tayyip Erdogan.

The Central Bank of the Republic of Turkey on Thursday lowered its benchmark interest rate by 1.5 percentage points to 10.5%. The bank cut rates by 1 percentage point per month in August and September. The bank has kept rates at 14% for eight months, pausing an earlier cut that sparked a currency crisis.

“It is paramount that financial conditions remain supportive to sustain the growth momentum in industrial production and positive trends in employment” amid uncertainties about global growth and geopolitical risks. governance, the central bank said in a statement explaining its latest decision.

The statement signaled that the bank would take a “similar step” in November, which would bring the policy rate down to single digits.

Turkey has followed Erdogan’s belief that high borrowing costs cause high inflation, despite traditional economic thinking that raising interest rates is the antidote to inflation. The country saw inflation hit a staggering 83.45% in official statistics in September, making it difficult for residents to shop for essentials.

Central banks around the world have followed the opposite path of Turkey, rapidly raising interest rates to curb soaring consumer prices. The euro zone 19 saw inflation hit a record 9.9% last month, and the European Central Bank has enacted massive interest rate hikes to combat that. , another rate hike is expected next week.

The Turkish lira has lost about 28% of its value against the US dollar since the start of the year – culminating in an even worse appreciation in 2021. On the other hand, the dollar has hit a historic high history as in America. The Federal Reserve tightened financial conditions.

As Erdogan prepares for the presidential and parliamentary elections in June, he is counting on reducing borrowing costs to boost the economy. He has expressed his wish that interest rates will fall to single digits and believes that the lira will increase in value.

This month, Erdogan said that as long as he is president, “interest rates will continue to fall every day, every week that passes, every month that passes. No one should give us advice on this topic.”

He said investments and growth could only happen under low interest rates and encouraged businesses to borrow from state-owned banks.


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