ANKARA, Turkey — Turkey’s central bank cut interest rates further outsized on Thursday despite inflation over 85% and other countries moving in the opposite direction to ease the pain of soaring prices.
The central bank said its monetary policy committee decided to cut the benchmark policy rate by 1.5 percentage points to 9%, following a series of similar cuts.
The move is in line with President Recep Tayyip Erdogan’s unorthodox economic views that high borrowing costs lead to high inflation, even though mainstream economic thinking says that raising interest rates helps keep inflation in check.
Erdogan had called for a single-digit interest rate by the end of the year. He is counting on lower borrowing costs to propel the economy as Turkey prepares for presidential and legislative elections next June.
The bank had also cut its borrowing costs by 1.5 points last month and by 1 point each in August and September. However, the Monetary Policy Committee announced that the easing cycle would now come to an end.
“Given the growing risks to global demand, the Committee has assessed the current policy rate as adequate and has decided to end the rate cut cycle that began in August,” he said in a statement. .
Inflation reached 85.51% in October, according to official statistics, making even basic necessities unaffordable for many. Independent researchers have, however, estimated that the actual price increases are well above the official figures.
The European Central Bank, the US Federal Reserve and other central banks around the world have gone the opposite way of Turkey, rapidly raising interest rates to curb soaring consumer prices. Sweden raised its key interest rate by three-quarters of a percentage point on Thursday.
Their inflation rates are much lower than Turkey’s, reaching 10.6% in the 19 countries using the euro, 9.3% in Sweden and 7.7% in the United States last month.
The Turkish lira has lost around 28% of its value against the US dollar since the start of the year, in addition to taking even worse hits in 2021.