For the fourth consecutive month, the Turkish Central Bank kept the key interest rate at 14% in an attempt to contain the accelerating inflation driven by the collapse of the Turkish lira exchange rate and the war in Ukraine.
Turkish President Recep Tayyip Erdogan, who, contrary to classical economic theories, considers that high interest rates cause inflation, forced the Central Bank to cut the key interest rate from 19% to 14% between September and December, which led to the collapse of the local currency. .
The exchange rate of the Turkish lira fell by 44% once morest the dollar in 2021, which led to a rise in the inflation rate of 61.1% over a year in March, its highest level since Erdogan’s Justice and Development Party came to power in 2002.
In a statement, the Turkish Central Bank said that the process of decreasing inflation will not start before returning to a peaceful environment in the world.
Despite government promises to control inflation, the Ukraine war has raised fears of a new price hike; Turkey is an importer of Russian and Ukrainian wheat and relies heavily on Russia for gas.
Under these circumstances, Erdogan announced in early February a reduction of the value-added tax on basic food commodities, and then at the end of March a reduction in the same tax from 18% to 8% on hygiene products and restaurants.
Erdogan, who spent 19 years in power as prime minister and then president, hopes to be re-elected during the next presidential vote scheduled for June 2023.
(AFP)
The Turkish Central Bank keeps interest at 14% for fear of inflation
