Mon | Sep 26, 2022
TURKEY

Central bank makes big rate cut amid 80% inflation

Published:Friday | September 23, 2022 | 12:07 AM
A food shop seller talks to clients in a street market in Istanbul, Turkey, Thursday, on September 22. The depreciation of Turkey’s national currency is likely to intensify the financial worries of residents who have seen their purchasing power erode dur
A food shop seller talks to clients in a street market in Istanbul, Turkey, Thursday, on September 22. The depreciation of Turkey’s national currency is likely to intensify the financial worries of residents who have seen their purchasing power erode during a series of economic shocks in the country. (AP Photo/Francisco Seco)

ISTANBUL (AP):

Turkey’s central bank delivered another massive interest rate cut Thursday despite eye-popping inflation above 80 per cent, moving the opposite way from world economies that are raising rates to control prices as the lira sunk to record lows.

The Central Bank of the Republic of Turkey lowered the benchmark rate by one percentage point, to 12 per cent. The lira was trading around 18.38 against the dollar, weakening further than the previous record low of 18.36 in December.

The depreciation of Turkey’s currency is likely to intensify the financial worries of residents who have seen their purchasing power erode during a series of economic shocks in the country.

Turkey has followed President Recep Tayyip Erdogan’s unorthodox belief that high interest rates cause high inflation, cutting borrowing costs despite consumer prices rising by 80.21 per cent in August from a year earlier. Traditional economic thinking says raising interest rates fights inflation.

“Inflation is not a crippling economic threat,” Erdogan said in an interview with PBS NewsHour this week. “There are currently countries threatened by inflation rates of eight per cent and nine per cent. This rate is 80 per cent in our country.”

He said Turkey would bring inflation under control after New Year’s and that supermarkets were well stocked.

Central banks around the world are taking the reverse action from Turkey, aggressively raising rates to target soaring inflation.