Turkey has slashed its policy rate for the third consecutive month despite the plunging Turkish lira and record inflation. The Monetary Policy Committee (MPC) of the Central Bank of the Republic of Turkey (CBRT) decided Thursday to reduce the policy rate from 12% to 10.5%, according to a statement.
The central bank said it would continue working within the framework of the liraization strategy to achieve a permanent fall in inflation and the medium-term 5% target.
The CBRT said that soaring inflation is due to the lagged and indirect effects of rising energy costs, effects of pricing formations, and strong negative supply shocks caused by the rise in global energy, food, and agricultural commodity prices.
Turkish President Recep Tayyip Erdogan has said the central bank would keep cutting rates every month for as long as he is in power. Erdogan wants interest rates to lower to single digits by the end of the year. Since the start of Russia's war in Ukraine, central banks in most major economies have been hiking interest rates to tame soaring inflation. Turkey, however, is taking an unconventional economic model of loosening the monetary cycle.
Inflation in Turkey increased to 83.4% in September, marking a new 24-year high.
Higher consumer prices and a devalued currency forced Turkey to increase the minimum wage of its working citizens twice since the beginning of 2022. The country's trade deficit grew by 298% year-on-year to hit $10.38 billion in September,
The Turkish lira is losing its value against the US dollar and has been down 28% since January.
