Turkey’s central bank today raised its key interest rate by 6.5 percentage points to 15 percent. It signalled a shift to more traditional economic measures against unprecedentedly high inflation. The bank had previously cut interest rates due to pressure from President Recep Tayyip Erdogan.
A woman heads Turkey’s central bank
For the first time, Turkey’s central bank is led by a woman, Hafiz Gaye Erkan, who has experience in the financial sector in the United States but not in central banking. The previous central bank chief, Şahap Kavcioglu, spearheaded Erdoğan’s efforts to lower interest rates, which kicked off the currency’s historic crash in 2021. As a result, inflation reached more than 85 percent last year, the highest in 24 years. But it has been falling since then, reaching just under 40 percent in May, according to official data.
Erdoğan appointed Mehmet Şimşek as finance minister. He was previously deputy prime minister and is respected abroad and among investors, according to news agencies. Şimşek has already announced that economic policy must return to rational limits.
Moving away from unorthodox beliefs
According to the AP, the rate hike indicates that the country is moving away from Erdoğan’s unorthodox belief that interest rate cuts can fight inflation. Traditional economic theory says the opposite, and central banks around the world are raising interest rates to combat soaring consumer prices. Today, for example, the central banks of Britain, Switzerland, Norway and Sweden have done so.
The central bank, under pressure from Erdogan, cut its benchmark interest rate from around 19 percent in 2021 to 8.5 percent earlier this year, despite soaring inflation. According to independent think tank ENAG, the actual inflation rate in May was 109 percent.
Source Czech Press Office
