Turkish lira to record low after interest rate cut under pressure from Erdogan Economy

The central bank cut interest rates despite analysts’ warnings that another cut could weaken the lira further and fuel inflation. In addition, the lira has been in free fall for some time after the decision last month to cut interest rates by 1 percentage point. It was the first interest rate cut in more than a year. Earlier this month, the World Bank warned of financial instability if further interest rate cuts follow.

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But the latest rate cut came after continued pressure from President Recep Tayyip Erdogan. The Turkish ruler has been swearing by lower interest rates in his country for some time, despite many economists. Last month, Erdogan had fired two more important top executives of the Turkish central bank. Erdogan had previously replaced top central bank officials. Erdogan argues that high interest rates cause high inflation, but that goes against common economic theory. Normally, an interest rate cut will lead to higher prices.

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