Turkey cuts interest rates as inflation hits 80%

While central banks around the world have aggressively raised interest rates to fight inflation, Turkey’s central financial institution is taking an entirely different approach.

Regardless of inflation hovering at around 80%, Turkey’s central financial institution announced that it has decided to cut its interest rate from 14% to 13%. It was 14% in the previous seven months. Analysts had not anticipated any price change.

Turkish President Recep Tayyip Erdogan has pressured the financial institution to lower borrowing prices to boost financial development, investment and exports. Erdogan has insisted that interest rate hikes trigger inflation, defying established financial institutions, believing that rising prices will help curb inflation.

Turkey’s inflation for July rose to 79.6%, its highest level in 24 years, as food and electricity prices soared.

The Turkish lira slid about 1% after the sharp price drop, buying and selling at over 18.1 for the greenback – near an all-time high. The lira has lost 26% of its value against the greenback this year. Five years ago, the lira traded at 3.5 against the greenback.

“With this new lower interest rate, the fifth consecutive drop in its repo rate in Turkey, its inflation rate, at 79.6%, is the second after Venezuela, where inflation is a staggering 167 %,” said Caleb Silver, editor-in-chief. Head of Investopedia.

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