Wednesday, December 8, 2021

Turkey cuts interest rates again, currency hits new low

ANKARA, Turkey (AP) – Turkey’s central bank cut interest rates again on Thursday, a day after President Recep Tayyip Erdogan spoke out against high borrowing rates and expressed growing concern over the impact of rising consumer prices for families and business.

Following the bank’s announcement, the lira fell to a new all-time low of 11.07 against the US dollar – down 3.5% from Wednesday’s close – continuing a long run of losses. Turkey’s currency has lost more than 30% of its value since the beginning of the year, seriously undermining the purchasing power of Turkish consumers.

The central bank’s monetary committee said it is cutting the discount rate to 15% from 16%, even as inflation is close to 20%. This was the bank’s third interest rate cut in months.

The rate cut has heightened concerns about the bank’s independence from Erdogan, who, contrary to traditional economic theory, claims that high interest rates cause inflation and has declared himself an “enemy” of high borrowing costs.

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Erdogan told ruling party lawmakers in parliament on Wednesday that he will continue to fight high interest rates as long as he remains in office. The increasingly authoritarian Turkish leader also suggested that he would part ways with any high-interest rate official.

“The interest rate is the cause, inflation is the consequence,” Erdogan said. “We will take the burden of high interest off our employees.”

The leaders of the two opposition parties accused Erdogan of severe economic mismanagement and called for an early general election. Erdogan insists that elections will be held in 2023 as scheduled.

Since 2019, the president has fired three central bank governors over concerns over the bank’s independence.

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