Inflation in Turkey is traveling at an annual rate of over 80%, but the country’s central bank, hostage to President Recep Tayyip Erdogan, continues to cut interest rates.
In the aftermath of the Federal Reserve’s maxi rate hike, equal to +75 basis points, and on the same day that Switzerland said goodbye to negative rates (again the SNB raised rates by 75bps) and the Bank of England has raised UK rates for the seventh consecutive time (in this case by 50 basis points), the Central Bank of Turkey has again opted for ultra-expansionary monetary policy, despite runaway inflation, which dwarfs the data from the rest of the world.
But it is not a problem for President Erdogan who, in a speech delivered on Tuesday and reported by the CNBC, expressed himself as follows:
“Inflation is not an insurmountable economic threat. I am an economist ”.
Erdogan believes inflation in Turkey will drop by the end of this year.
In Turkey, rates were cut by 100 basis points today, from 13% to 12%, against a rate of inflation (measured by the CPI consumer price index) which, in August, jumped by 80. , 2% on an annual basis, accelerating the pace for the 15th consecutive month and hitting the record of the last 24 years.
Turkey’s rates had already been cut by 100 basis points in August, after being scissored by as many as 500 basis points over the course of several meetings in late 2021, triggering a currency crisis.
In Turkey we are witnessing a record surge in the various components of inflation: breaking down the consumer price index in August, we learn that transport prices have jumped by 116.87% on an annual basis, and that the prices of food and non-alcoholic beverages flew by 90.25%.
Since the beginning of the year, the Turkish lira has plummeted by more than 27% against the US dollar, suffering a plummet of 80% in the past five years.
Following the central bank’s announcement today, the currency plunged to a record low of 18.379 against the dollar.
In Turkey, the inflation rate started to heat up well before the war in Ukraine:
in January, when Putin’s Russia had not yet invaded the country (the invasion took place on February 24), Turkish inflation was already flying to the record of the last 20 years, with a boom of almost 50%. But independent economists stressed that they believed the true boom was + 110%.
The senseless monetary policy of a central bank that has been literally gagged, due to Erdogan’s aversion to interest rate hikes, continues: according to the president, interest rates are “the mother of all evils” .
The central bank was thus forced due to the bizarre ideas of the Turkish president to repeatedly cut rates despite the continuous flares of inflation (not to raise them): the cuts followed one after the other during 2020 and 2021 And now, also in 2022.