To the surprise of the financial markets, the Turkish central bank lowered its benchmark interest rate to 10.5% on Thursday. This is while the country is struggling with skyrocketing inflation of more than 83% in September.
Consumer prices in Turkey have risen almost continuously in double digits since the beginning of 2017. Inflation has increased further this year due to rising costs of energy and other commodities, partly due to the Russian invasion of Ukraine. Food is also getting more expensive.
Inflation in the country is fueled by President Recep Tayyip Erdogan’s unusual interest rate policy. Many economists believe that interest rates should rise when inflation is high. Higher interest rates mean that people spend less money. As a result, there is less demand for goods and services and prices go down.
Erdogan urged the Turkish central bank to cut interest rates. He believes that high interest rates lead to higher prices. The main interest rate was 12%.
