President wants interest rate cuts: Erdogan’s urging sends Lira downhill

President wants rate cuts
Erdogan’s urging sends Lira downhill

High inflation is slowed down by higher interest rates, which is what budding economists learn in the first semester. The Turkish head of state Erdogan takes the view that it is exactly the other way around. When he urged the central bank to cut interest rates further, the lira rushed to its all-time low.

The Turkish President Tayyip Erdogan has sent the already massively weakened national currency lira to a record low with further appeals for interest rate cuts. The high inflation is likely to decline if the key interest rates are lowered, Erdogan told the state broadcaster TRT on Tuesday. Turkey should lower the key interest rate and promote investment, employment, production and growth.

US dollar / Turkish lira 13.48

Erdogan reiterated his unorthodox view that high interest rates drove prices up. The key interest rates are therefore likely to fall significantly before the 2023 elections and the acceleration in prices is likely to subside. He does not want to distance himself from this economic model.

The lira then went downhill. In the markets, 14 lira were paid for one dollar. Since the beginning of this year, the Turkish currency has devalued 45 percent. Erdogan is an avowed opponent of interest rate hikes and is putting pressure on the central bank to lower key interest rates – although inflation has recently risen to almost 20 percent. Companies are warning of economic difficulties caused by the collapse of the lira, which is making imports significantly more expensive and thus further fueling inflation.

Erdogan argues against it and sees the high interest rates – currently the key rate in Turkey is 15 percent – as the reason for the rising inflation. Erdogan believes Turkey will see strong economic growth this year. At least ten percent of the gross domestic product should increase, so his optimistic forecast. The core indicators for the Turkish economy are very strong and the country is currently waiting for long-term investments from abroad.

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