Despite 83% Inflation in Turkey, Erdogan Plans to Continue Cutting Interest Rates

Much of the world has been dealing with high inflation rates due to supply chain issues lingering from the COVID-19 pandemic and rising food and energy costs.

Inflation in Turkey has hit an alarming 83% compared to prices last year, including a 3.08% increase from last month.

The producer price index, which is how much producers and wholesalers pay for products, is also up 4.78% from last month and 151.5% from last year. Despite this, Turkish President Recep Tayyip Erdogan says that he plans to continue lowering interest rates, something most economists believe will increase inflation further.

“My biggest battle is against interest. My biggest enemy is interest. We lowered the interest rate to 12%. Is that enough? It is not enough. This needs to come down further,” Erdogan said in September. Already, the central bank of Turkey has lowered interest rates by 200 basis points, or 2%, over the past two months.

Meanwhile, central banks in other countries, including the US and the UK, have been raising interest rates in an attempt to curb inflation. However, it is worth noting that most Western central banks have much lower interest rates than Turkey’s 12%. For comparison, the UK recently raised its rates to 2.25%, the highest it has been since 2008.

Regardless of where Turkey’s interest rates sit in comparison to other countries, most economists still agree that lowering interest rates will increase inflation and hurt the value of the Turkish lira, which has lost roughly 28% of its value compared to the US dollar this year alone.

Turkish officials say that lowering interest rates will eventually decrease inflation, something they expect to happen over the next months. That flies in the face of conventional wisdom, which is that lowering interest rates will stimulate the economy but at the cost of inflation, whereas raising interest rates will slow inflation while potentially stunting economic growth and raising unemployment.

"We will build the century of Turkey together, hopefully by overcoming the inflation issue," Erdogan said in an address televised on Monday.