The Turkish central bank is combating inflation with high key interest rates. But these are below the inflation rate.
Inflation has increased again in Turkey. Consumer prices rose by 69.8 percent in April compared to the same month last year, as the statistics office in Ankara announced. This is the highest rate since the end of 2022. Analysts had expected a rate of 70.1 percent on average.
The country’s central bank is combating inflation with high key interest rates. However, the most important central bank interest rate, at 50 percent, is still significantly lower than the inflation rate. The real key interest rate is therefore negative, which stimulates economic activity – and thus inflation – rather than slowing it down.
The negative real interest rate is also seen as an important reason for the weak national currency, the lira, as it makes a financial investment in Turkey appear less attractive for foreign investors. The lira exchange rate is near record lows against both the US dollar and the euro. The weak national currency makes imported goods and services more expensive and thus fuels inflation in the country.
Source: Stern
