Turkey slashes interest rates by 150 basis points despite inflation at 83%
Turkey’s President Recep Tayyip Erdogan attends a press conference after his meeting with Venezuelan President in Ankara on June 8, 2022.
Adem Altan | AFP | Getty Images
Turkey’s central bank slashed its key interest rate by 150 basis points for the third consecutive month of cuts on Thursday, from 12% to 10.5%.
Market analysts expected a 100 basis-point cut, so the move still managed to take many by surprise despite the increasing regularity of Turkey’s slashing of interest rates.
The country’s monetary policy, directed by Turkish President Recep Tayyip Erdogan, is based on a pursuit of growth and export competition rather than calming inflation. Erdogan vocally espouses the unorthodox belief that raising interest rates increase inflation, rather than the other way around, and has called the raising of rates “the mother of all evil.”
The policy consistently provokes criticism and bafflement from economists, and plays a major role in the dramatic weakening of Turkey’s currency, the lira, which has lost roughly 28% of its value against the greenback this year.
“The lira remains weak, real yields are artificially low, inflation has surged and the current account remains in deficit. This has caused international investors to abandon the local currency bond market in Turkey in recent years,” Daniel Wood, portfolio manager at William Blair Investment Management, wrote in a note Thursday.
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