Turkey Cuts Interest Rates Again, Even Amid 80% Inflation

President Erdogan has been insistent that to stem inflation you cut interest rates, which puts him at odds with most economists T urkey'...

President Erdogan has been insistent that to stem inflation you cut interest rates, which puts him at odds with most economists

Turkey's counterintuitive economic policy encouraged by its president shows no sign of abating. Its central bank has again cut interest rates amid rampant inflation, causing the lira to take a hit.

Turkey's central bank announced another interest rate cut on Thursday, reducing its key rate to 13% from 14%. The central bank cited the "weakening effects of geopolitical risks" when explaining its decision.

The Turkish lira dipped against the US dollar on the back of the news; it has lost more than half its value against the dollar in the past 12 monthsand it was worth roughly six times more against the dollar in August 2017 than at present.

But consumers in Turkey will likely be even more concerned about 80% year-on-year inflation figures that are expected to rise further by the end of 2022. Turkey's repeated reductions in rates come at the insistence of President Recep Tayyip Erdogan, who believes — contrary to well-established economic principles — that reducing interest rates can slow inflation, rather than fuel it.

Erdogan, keen for the central bank to pursue policies designed to spur growth, has sacked three central bank heads who pursued a more traditional economic policy since 2019. Elections are scheduled for next June; rapid economic growth has been a core plank of Erdogan's past campaigns.

The central bank made a series of controversial rate cuts late last year, causing a similar impact on the lira and on inflation as Thursday's move, but it had refrained from any major activity since December.