Turkey refuses to raise rates to fight record inflation

Turkey refuses to raise rates to fight record inflation

ISTANBUL: Turkey’s central bank on Thursday brushed aside an inflation reading that has soared past 60 percent and kept its benchmark interest rate steady for the fourth month in a row. The widely-anticipated decision reflects President Recep Tayyip Erdogan’s unorthodox conviction that high interest rates cause inflation rather than slow it down. But it means that Turkey will continue to rely on expensive economic support measures that could further deplete state coffers and inhibit foreign investors from returning to the once-promising emerging market.

“It would probably take the emergence of severe strains in the banking sector to bring an interest rate hike on to the agenda,” analyst Jason Tuvey of Capital Economics remarked. The central bank said its decision to hold the main interest rate at 14 percent was driven by expectations of the “disinflation process” starting soon. Russia’s invasion of Ukraine and the aftereffects of the coronavirus pandemic have sparked energy price spikes and production bottlenecks that pushed US and European cost of living increases to their highest levels in more than 20 years.

But Turkey’s annual inflation rate of 61.1 percent-the highest since Erdogan’s ruling party stormed to power in 2002 — is largely disconnected from most global factors.  Turkey entered an economic