In Turkey, inflation is at historic highs. 79.6% over one year in July and this rate is only growing. But as usual, the Central Bank operates contrary to the practices of most institutions in the world and lowers its key rate. This Thursday, it lowered it again from 14 to 13%, which immediately caused the value of the Turkish lira to fall.
Faced with inflation, the central bank has on several occasions responded by lowering its rates, contrary to classic theory and current practice. So ordered Turkish President Recep Tayyip Erdogan. But for the past seven months, the bank had kept its rate stable, hence the surprise of the markets at this new rate cut. The central bank justifies it by the “ uncertainties about global growth and geopolitical risks “.
Following this drop, the currency lost 1% of its value against the dollar to reach its lowest level since December 20, 2021 (18 pounds for 1 dollar). To the despair of the population who observes their currency collapsing. In 2021, it lost nearly 44% of its value against the greenback and this decline has continued since January (25%), enough further fuel inflation.
Record inflation
Last week, the authorities revised their inflation forecast for the end of the year upwards to 70.6%. For independent economists and opponents of Erdogan, it would be twice as large.
For the Turks, the surge in prices is becoming difficult to sustain, despite two increases in the minimum wage since January 1. The country is very dependent on imports, especially for raw materials and energy. Turkey has experienced double-digit inflation almost continuously since the beginning of 2017, but consumer price inflation had never reached such a high since the Justice and Development Party (AKP) came to power in 2002. of President Erdogan.
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