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ISTANBUL (AP) — Turkey’s central bank has slashed interest rates for the third month in a row, making its biggest drop this year despite sky-high inflation that is squeezing people's finances as it follows President Recep Tayyip Erdogan’s unorthodox economic views.
The Central Bank of the Republic of Turkey on Thursday lowered the benchmark rate by a massive 1.5 percentage points, to 10.5%. The bank cut rates by 1 percentage point each in August and September. The bank had kept the rate at 14% for eight months, pausing a previous round of cuts that triggered a currency crisis.
Turkey has followed Erdogan’s belief that high borrowing costs cause high inflation, though traditional economic thinking says that raising rates is the antidote to inflation. The country saw inflation hit a staggering 83.45% in official September statistics, making it difficult for people to afford to buy necessities.
Central banks around the world have taken the opposite route of Turkey, rapidly raising interest rates to clamp down on soaring consumer prices. The 19-country area that uses the euro currency saw inflation reach a record 9.9% last month, and the European Central Bank has been enacting big rate hikes to combat it, with another expected next week.
The Turkish lira has lost some 28% of its value against the U.S. dollar since the beginning of the year — on top of taking an even worse battering in 2021. The dollar, on the other hand, has hit a historic high as the U.S. Federal Reserve tightens financial conditions.
As Erdogan gears up for presidential and parliamentary elections next June, he is counting on lower borrowing costs to propel the economy. He has expressed his wish that interest rates go down to single digits and a belief that the lira would appreciate in value.