Turkey’s central bank has shocked the international community by cutting its benchmark interest
rate even though inflation in the country is hovering near 80%.
The country’s trendsetting interest rate, which had been at 14% for the last seven months, was
cut to 13% in a complete disconnect to what other central banks are doing to dampen inflation
and bring down elevated consumer prices.
What makes the interest rate cut so shocking is that Turkey is in the midst of runaway inflation,
with consumer prices rising 79.6% in July from a year ago, its highest level in 24 years.
Turkey’s currency, the Lira, fell 0.9% against the U.S. dollar, trading at more than 18:1 to the
U.S. dollar, near a record low.
Turkish President Recep Tayyip Erdogan has taken an unorthodox approach to monetary
policy, refusing to cool inflation, and calling interest rates the “mother of all evil.”
The result has been a plummeting currency. The Lira has lost 26% of its value against the U.S.
dollar this year and plunged 80% against the greenback over the past five years.
Erdogan has ordered Turkey’s central bank, which has no independence from him, to
consistently cut interest rates since 2020, even as inflation has steadily risen.
Turkey’s central bank has had four different governors in the past two years.
