Turkey’s central bank on Thursday resumed its policy of cutting the key interest rate even as the country grapples with soaring inflation and the aftermath of a devastating earthquake.
The bank’s Monetary Policy Committee said it cut its benchmark interest rate by 0.5 percentage point, down to 8.5%. The Central Bank of the Republic of Turkey cut its benchmark interest rate by 5 percentage points – down to 9% – between August and November but has left interest rates unchanged since then.
The cuts came despite the country’s high inflation, which is currently at 57.68% and causing a cost-of-living crisis.
Central banks around the world raised interest rates to fight inflation in their countries.
The 7.8-magnitude earthquake, which struck parts of Turkey and Syria on February 6, has killed more than 43,500 people in Turkey and destroyed 164,000 buildings. It has been described as the worst disaster in the country’s modern history.
The central bank said the earthquake will not affect Turkey’s economy in the medium term.
“The impact of the earthquake on production, consumption, employment and prospects is being widely assessed… While the earthquake is expected to affect economic activity in the near term, it is not expected to have a lasting impact on the performance of the Turkish economy in the medium term,” the bank said in a statement.
The interest rate cuts are in line with President Recep Tayyip Erdogan’s unorthodox economic views that higher borrowing costs cause high inflation, even though conventional economic thinking says that higher interest rates help tame inflation.
Earlier this month, Erdoğan criticized interest rate increases by central banks around the world, signaling his intention to cut interest rates further.
