Central Bank Of Turkey Cuts Interest Despite Rampant Inflation & Currency Crisis; Erdogan Quotes Verse From Koran Forbidding Interest

by Swarajya Staff - Jan 4, 2022 08:52 AM +05:30 IST
Central Bank Of Turkey Cuts Interest Despite Rampant Inflation & Currency Crisis; Erdogan Quotes Verse From Koran Forbidding InterestErdogan
Snapshot
  • The Turkish lira plunged to a record low against the dollar on Thursday (Nov 18) after the country's central bank slashed interest rates for the third consecutive month following relentless pressure from President Recep Tayyip Erdogan.

    Erdogan has previously fired a number of central bank governors who have not agreed with his unorthodox belief that high interest rates cause inflation instead of helping combating it.

The Turkish lira plunged to a record low against the dollar on Thursday (Nov 18) after the country's central bank slashed interest rates for the third consecutive month following relentless pressure from President Recep Tayyip Erdogan.

The central bank under governor Sahap Kavcioglu defied conventional economic policymaking and reduced repo rate from 16 to 15 percent despite rampant inflation and a fast-depreciating currency.

The interest rate was 19% in the beginning of September and has been slashed by 400 basis points by the central bank since then due to Erdogan's pressure

Inflation in Turkey has accelerated to almost 20% in October, a level last seen in the wake of a currency crisis three years ago. The lira has lost around a third of its value against the dollar since December and is poised for a ninth straight yearly loss. It has weakened more than 20% since the central bank started cutting rates in September.

Erdogan has previously fired a number of central bank governors who have not agreed with his unorthodox belief that high interest rates cause inflation instead of helping combating it.

In conventional policy making, if facing a rising inflation then a country's central bank needs to increase interest rates to drive price increases down again. The higher the inflation, the higher rates need to go to combat it.

In a speech he delivered to his ruling AKP party members in the parliament on Wednesday, Erdogan justified his decision with a verse from the Koran which strictly forbids interest.

Erdogan has once described interest rates the "mother and father of all evil."

"I cannot stand by those who defend interest," he said.

Erdogan has continued his war on interest rates despite Turkey's opposition parties and businesses urging him repeatedly to tame inflation and stabilise the currency.

Turkey's opposition leader called Kemal Kilicdaroglu termed Erdogan the real "central bank governor" and accused him of dragging the country into catastrophe.

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