Turkey’s election, which surprised investors by re-anointing Recep Tayyip Erdogan as president, has deepened the country’s economic malaise
Such difficulties are symptoms of eccentric monetary policy. In 2021, facing inflationary pressure that caused central banks everywhere to raise interest rates, Turkey cut them. Believing that low rates lower inflation—the opposite of economic orthodoxy—Mr Erdogan has repeatedly strong-armed Turkey’s central bank to slash its policy rate. Indeed, the overnight policy rate now stands at a cool 8.5%. According to official figures, annual inflation hit 86% in 2022 .
Yet when the theory was put to the test in late 2021, Mr Erdogan was proved wrong. After all, inflation continued to rise. The problem was that the other channels through which interest rates affect inflation dominated the cost channel by which Mr Ertem expected inflation to be reduced, says Selva Demiralp of Koc University.
In the sectors where interest rates are less distorted, though, nominal interest rates have moved in the opposite direction to the policy rate . Since investors do not believe the central bank will act to stop inflation in the future, inflation expectations have risen. This has fed into higher consumer-lending rates, especially for longer-term loans, because investors demand a higher return the lower the purchasing power they expect the lira to hold in the future.
Australia Latest News, Australia Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
How to make the re-election of Recep Tayyip Erdogan less bad newsThere is a chance for a partial reset
Read more »
Investor favourite Mehmet Şimşek set to return as Turkish finance ministerMove signals that President Recep Tayyip Erdoğan may be open to a more orthodox economic approach
Read more »
Attempted murder investigation after masked men 'enter home and shoot male'“This is a despicable attack that has left a man in hospital with potentially serious injuries and upset the local community in this area who just want to live in peace.'
Read more »
Win a copy of Space Otter Charlie on Xbox - click here to enter!Click here for a chance to win a free copy of Space Otter Charlie. Check back tomorrow for a chance to win a different game!
Read more »
Win a copy of Barn Finders on Xbox - click here to enter!Click here for a chance to win a free copy of Barn Finders. Check back tomorrow for a chance to win a different game!
Read more »
Think-tank warns Sunak not to enter car ‘subsidy race’ with US and EU\n\t\t\tKeep abreast of significant corporate, financial and political developments around the world.\n\t\t\tStay informed and spot emerging risks and opportunities with independent global reporting, expert\n\t\t\tcommentary and analysis you can trust.\n\t\t
Read more »