Turkey plans to lower interest rates further as inflation soars

President Erdogan has been a vocal advocate of a theory that lower interest rates lead to lower inflation, the opposite of what most economists believe

Turkey's lira plunged to historic lows and inflation hit a 19-year high after the central bank started the rate-cut cycle in line with Mr Erdogan’s demands. AP

Turkey's President Recep Tayyip Erdogan has promised the country will continue cutting interest rates, suggesting that lower inflation will follow.

“We will lower interest rates as we have done already,” said Mr Erdogan, after the Turkish central bank halted a rate-cut cycle this month that trimmed 500 basis points from the benchmark rate since September.

The aggressive easing cycle was accompanied by runaway inflation, which has caused an outcry among Turks who’ve witnessed a deep erosion of their purchasing power in a few months.

“We are aware of the fact that the inflation is a serious burden on citizens, Mr Erdogan said on Saturday in northern province of Giresun. “I repeat here, as you already know my fight against interest rates; we will lower interest rates as we have done already. Inflation will decline as well.”

The Turkish president has been a vocal advocate of a theory that lower interest rates lead to lower inflation, the opposite of what most economists believe.

The Turkish experience has not backed up Mr Erdogan’s thinking. The lira plunged to historic lows and inflation hit a 19-year high after the central bank started the rate-cut cycle in line with Mr Erdogan’s demands.