Thursday, December 16, 2021
Lira collapses
Turkish central bank cuts key interest rate sharply
The Turkish central bank is following the course of President Erdogan and is lowering the key interest rate for the fourth month in a row. The lira then continues to plummet. Experts criticize the decision massively. Meanwhile, it is mainly the citizens who have to pay for the daring course.
The Turkish central bank has lowered the key interest rate again despite high inflation and ongoing pressure on the local currency, the lira. On Thursday, she once again stood behind the controversial economic policy of Turkish President Recep Tayyip Erdogan. Contrary to popular belief, he is of the opinion that high interest rates cause inflation instead of combating it. The central bank announced that the key interest rate will be reduced from 15 to 14 percent.
It is the fourth rate cut in a row despite the high inflation rate of more than 21 percent. The lira responded immediately and gave way. It had already hit a record low the morning before the interest rate decision. For the first time, more than 15 lira had to be paid for one US dollar, and for the first time more than 17 lira were due for one euro. Since the beginning of the year, the national currency has lost around half of its value against the dollar and the euro – in November alone it lost a quarter of its value. For the Turks, life has become considerably more expensive in recent months due to high inflation and the weak currency. Food prices in particular are rising sharply.
Erdogan hopes for investments
Erdogan repeatedly defends his policy against criticism. He speaks of a “new economic model” and wants to stimulate exports with a low key interest rate. Erdogan also wants to ensure more investment, employment and production with a loose monetary policy. Economic expert Mustafa Sönmez sharply criticized this course. The president does not want to see that he creates resentment among the citizens, he said. The Erdogan government insists on “irrational steps” and is pushing the country into the unknown.
The continuation of monetary easing despite extreme currency volatility and rising double-digit inflation prompted the rating agency Standard & Poor’s to downgrade its outlook for the economy to negative last week as it sees increasing risks for Turkey’s externally leveraged economy.