Turkey Implements New Interest Rate Hike in Recent Economic Move

In a recent development, Turkey has raised its interest rates to a staggering 45%, a sharp contrast to the 3% Overnight Policy Rate (OPR) in our country. This move has sparked questions about Turkey’s economic wisdom and the potential political impact.

Turkey has long grappled with inflation issues, particularly hyperinflation, which began in 2022. Hyperinflation, a dangerous form of inflation, occurs when inflation rates exceed 50%. In 2022, many countries faced inflation pressures due to the injection of funds into the economy to combat the effects of COVID-19. However, Turkey’s approach to this issue differs from most countries. They chose to reduce interest rates as inflation increased. President Erdogan, known for his opposition to interest rate hikes, took a populist approach by lowering interest rates during election campaigns.

This choice, despite garnering support during elections, led to problems when inflation continued to rise post-2022. At this point, Turkey had to raise interest rates to address hyperinflation. This decision, however, remains controversial and faces opposition.

Nevertheless, the pre-local election interest rate reduction at the end of March indicates a strategic move to avoid unpopular decisions during the campaign. President Erdogan is recognized as a leader who controls the central bank, ensuring its actions align with his words, even if it contradicts conventional economic approaches.

The increased interest rates, however, are only part of the solution to the hyperinflation problem. Considerations for aligning government spending and suspending populist policies may be necessary, though this might impact the welfare of the Turkish people.



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