ISTANBUL — Turkey’s central bank delivered another interest rate cut today, moving the opposite way from world economies that are raising rates to combat soaring inflation as the lira sunk to record lows.
The Central Bank of the Republic of Turkey lowered the benchmark rate by 1 percentage point to 12%. The lira was trading around 18.38 against the dollar, weakening further than the previous record low of 18.36 in December.
The depreciation of Turkey’s national currency is likely to intensify the financial worries of residents who have seen their purchasing power erode during a series of economic shocks in the country.
Turkey has followed President Recep Tayyip Erdogan’s unorthodox belief that high interest rates cause high inflation, cutting borrowing costs despite consumer prices rising by an eye-watering 80.21% in August from a year earlier.
Central banks around the world are taking the reverse action in line with traditional economic thinking, aggressively raising rates to target soaring inflation.
The U.S. Federal Reserve hiked rates by a large three-quarters of a point for the third consecutive time Wednesday, followed Thursday by the Swiss National Bank’s biggest hike ever to its key interest rate. The Bank of England is weighing how aggressively Thursday to act as banks from Europe to Canada move quickly to rein in rising prices.
Official Turkish statistics released this month showed annual inflation was the worst among the Group of 20 major economies, but independent experts say inflation is much higher.
Critics also say the independence of the central bank and the official statistical institute have been undermined under Turkey’s presidency.
Last year, the currency kept hitting record lows as the central bank lowered interest rates from 19%. When it finally hit 18.36 against the dollar, Erdogan announced extraordinary measures that he claimed would safeguard the lira.
The government encouraged people to swap their dollars for the lira and place them in a deposit account that would give the interest rate plus any lira depreciation against the dollar. Though the lira rebounded after that announcement to a high of 11.09, it steadily declined this year.
In an interview with PBS NewsHour earlier this week, Erdogan said: “Inflation is not a crippling economic threat … There are currently countries threatened by inflation rates of 8% and 9%. This rate is 80% in our country.”
Erdogan said Turkey would bring inflation under control after New Year’s and he also said Turkish supermarkets were well stocked.