Turkey keeps its interest rate stable as inflation soars.
ANKARA: Turkey’s central bank on Thursday kept its main interest rate steady again as the country faces soaring inflation that has put pressure on households and President Recep Tayyip Erdogan’s government. The bank left its policy rate at 14% for the second time in a row after a four-month streak of cuts which caused a currency crisis late last year that decimated people’s purchasing power.
Inflation reached nearly 50% in January, a two-decade high that further cut people’s purchasing power.
The Turkish lira lost 44% of its value against the dollar in 2021. Erdogan vehemently opposes high-interest rates, claiming they are the “mother and father of all evil” and cause high inflation. Central banks normally raise rates to tame inflation.
He has claimed his unorthodox thinking on monetary policy is part of a “war of economic independence” that aims to move Turkey away from relying on foreign capital inflows. The cost of living crisis could put pressure on his government’s hopes for victory ahead of a general election expected in 2023.
On Saturday, Erdogan cut sales tax on dairy products, fruit, vegetables and other basic food items from eight to one percent, and vowed to help with rising energy bills. The yearly increase in food prices was over 55% in January’s reading. The Turkish finance minister said earlier this month that inflation would peak in April and would fall to single digits by 2023.
Some economists believe inflation will reach around 55% in May before falling by the end of the year.