Turkey’s central bank on Thursday kept its main interest rate unchanged for a fourth month even as surging inflation has hit a 20-year high and eroded people’s purchasing power.
In a statement following a monetary policy committee meeting, the bank said it was keeping its policy rate “constant” at 14%.
The decision was in line with President Recep Tayyip Erdogan’s opposition to high borrowing costs in a bid to boost growth, investment and exports. The Turkish leader insists that raising interest rates cause inflation – a position that contradicts established economic thinking.
Turkey’s central bank has cut rates by 5 percentage points since September despite high inflation, then has paused them since January. The series of rate cuts last year triggered a currency crisis and rising consumer prices that have been aggravated by Russia’s invasion of Ukraine and soaring energy costs.
Yearly inflation hit 61.14% in March, deepening the squeeze on households that were already struggling to purchase basic goods. The Turkish lira lost 44% of its value against the U.S. dollar last year.
In an effort to soften the blow on households, the government has implemented tax cuts on basic goods and has adjusted electricity tariffs.
In comparison, the US, UK and the 19 countries that use the euro currency have seen decades-high levels of inflation – 8.5%, 7% and 7.5%, respectively – but are nowhere close to Turkey’s eye-watering rate. Central banks in the US and UK have raised interest rates to combat inflation.
A man checks goods he has just bought in a hardware stores market in Istanbul, April 11, 2022. Yearly inflation in Turkey hit 61.14% on April, climbing to a new 20-year high and deepening a cost-of-living crisis for many households. (AP Photo/Francisco Seco)