Despite Inflation Nearing 70%, Turkey Sticks to 'Interest Rate Cuts'

Turkey's April Inflation Rate Soars to 69.97%
President Erdogan's 'Interest Rate Cut' Persistence... "Enhancing Export Price Competitiveness Is More Important"

President Recep Tayyip Erdogan of Turkey. Photo by AP, Yonhap News

[Asia Economy Intern Reporter Kim Se-eun] Turkey's consumer prices in April rose nearly 70% compared to the same month last year.

On the 5th (local time), TASS news agency cited the Turkish Statistical Institute's announcement, reporting that Turkey's inflation rate in March (an indicator showing how much prices have risen compared to the previous year) was 61.14%, and in April it surged to 69.97%.

Turkey's annual inflation rate had already reached a record high of 48.46% in January, the highest since 2002.

However, the monthly inflation rate decreased slightly from 9.19% in March to 6.67% in April.

The Central Bank of Turkey significantly raised its inflation forecast for this year from the previous 23.2% to 42.8% last month.

AFP news agency described Turkey's current situation as "the depreciation of the local currency, the lira, leading to higher energy import costs, coupled with a continued exodus of foreign investors from Turkey."

This is because the Turkish government chose a "countercurrent" policy of lowering the benchmark interest rate to increase the money supply despite rapidly rising prices. As a result, the value of the national currency, the lira, plummeted.

The Central Bank of Turkey has cut interest rates for four consecutive months since September last year, and the benchmark rate, which was 19% in September, has been lowered to 14% as of now.

This monetary policy, which is the exact opposite of the international trend of raising interest rates, is due to pressure from Turkish President Recep Tayyip Erdogan.

Currently, President Erdogan argues that "high interest rates cause high inflation."

Prioritizing exports over domestic prices, he insists on the monetary policy by citing the reason that "if the value of the lira decreases, the price competitiveness of export goods increases."