Indian economist Sandeep Sanyal talks about Turkey’s interest rate cut amid 80% inflation


By CNBCTV18.com IST (Released)

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This is the second month that the Central Bank of the Republic of Turkey has lowered interest rates.

Supply shocks, admitted economic policies, the collapse of global logistics during the COVID-19 pandemic, and the ongoing Russian invasion of Ukraine have collectively fueled inflation in many countries. To combat growing inflationary pressure, central banks around the world have slowly raised interest rates. In other words, outside of Turkey. The country announced a further cut in interest rates even as inflation in the country led by Recep Tayyip Erdogan exceeded 80%.

In light of Turkey’s continued unusual economic policy, Indian economist and historian Sandeep Sanyal called the situation a “natural experiment”. Stating that countries rarely subscribe to such experimental policies, Sanyal said economists should be grateful when they do.

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“It’s what economists call a ‘natural experiment’…..countries rarely subscribe to it. Therefore, the field of economics should be grateful when they do,” he wrote on social media platform Twitter.

While inflation may be a common macroeconomic problem, Turkey’s approach is different. This is the second month that the Central Bank of the Republic of Turkey has lowered interest rates. Central banks tend to raise borrowing rates in times of inflation to remove excess liquidity from the economy, while lower rates cause more money to flow into the economy. But the bank’s moves come at a time when Turkey’s president has officially dismissed the risk of inflation.

“Inflation is not a crippling economic threat. There are currently countries threatened by inflation rates of 8% and 9%. This rate is 80% in our country,” Erdogan said in an interview with PBS earlier in the week. The inflation rate of 80.21% is the highest the country has seen in over 24 years. President Erdogan says shops are still well stocked as the country will be on track to bring inflation under control after the New Year.

President Erdogan’s focus on economic growth comes as general elections loom in the country. Many experts said the authoritarian ruler had undermined the independence of the country’s central bank as well as its official statistical institute. The country’s weakened currency has also led to more financial hardship for most households.




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