On the last day of Turkey’s three-day monetary policy meeting, the country’s central bank cut interest rates by 150 basis points and said it will no longer engage in easing. The country cited increased inflation risks to justify this decision.
Despite the high levels of inflation, President Tayyip Erdogan has been pressuring the CBRT to cut rates in order to help with unemployment. As a result, the inflation rate hit 85.5% as people’s food and energy prices continue to rise.
“Based on our assessment, the Committee decided that recent economic data indicate that economic activity is evolving roughly as anticipated,” a statement from the bank said.
Erdogan has repeatedly stated his goal of bringing the country’s interest rate down to single digits by the end of this year. Economists believe raising rates as part of a trend among central banks would further devalue the lira currency and drive up inflation.
“While the negative consequences of supply constraints in some sectors, particularly in basic food items, are being alleviated by the strategic solutions facilitated by Türkiye,” the bank said, “the upward trend in producer and consumer prices continues on an international scale.”
“High global inflation has a significant effect on inflation expectations and international financial markets,” the bank said. It went on to mention that central banks in advanced economies may be forced to emphasize that this rise in inflation can last longer than anticipated if high energy prices, supply-demand imbalances, and rigid labor markets persist.
The CBRT has been reviewing its policy framework and has said it will focus on the “liraization” of its financial system. The strategy is to “use all available instruments” to keep inflation at or below 5 percent until strong indicators point to a permanent fall in inflation, which the report said was not projected in the medium term.
“Stability in the general price level will foster macroeconomic stability and financial stability through the fall in the country risk premium, continuation of the reversal in currency substitution, and the upward trend in foreign exchange reserves. It will also lead to a durable decline in financing costs,” said the Central Bank of Turkey.
Investing in sustainable strategies for medical production would allow for efficient growth and continued production.