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Turkey’s central bank on Thursday announced another big interest rate hike in a bid to curb double-digit inflation that has left families suffering from food shortages and other necessities.
The bank raised its key interest rate through five issuances to 40%, marking its sixth straight sharp interest rate hike, aimed at fighting inflation, which reached a staggering 61. 36% last month.
However, the bank said its rate hikes would soon end.
“The current adjustment point is very close to the point required to set the course for disinflation,” the bank said. “As a result, the speed of adjustment will slow down and the adjustment cycle will end in a short period of time. “
President Recep Tayyip Erdogan has long advocated an unorthodox policy of cutting rates to combat inflation and has fired central bank governors who resisted his rate-cutting policy.
This flies in the face of classical economic thinking, and many have blamed Erdogan’s unorthodox strategies for the economic crisis that has been accompanied by a currency crisis and a rising cost of living.
The resulting economic crisis in Turkey hit the population hard, potentially threatening the enormous economic progress the country has made since the early 2000s.
Other central banks around the world have raised interest rates rapidly to target spikes in consumer prices tied to the rebound from the COVID-19 pandemic and then Russia’s war in Ukraine.
After Erdogan’s re-election in May, he appointed a new economic team, which would temporarily oppose his past policy of keeping interest rates low.
The team includes Mehmet Simsek, a former Merrill Lynch banker who served as finance minister until 2018, and Hafize Gaye Erkan, a former U. S. -based banking executive who took over as central bank’s lead in June.
During Erkan’s tenure, the central bank increased its main interest from 8. 5% to 40%.