Down the Rabbit Hole of Turkish Monetary Policy

September 22, 2022

While most countries seems to be running away from inflation, Turkey seemingly is taking steps to bring it on. Turkish CPI inflation has accelerated to 80.2% versus a target of 5%, and the lira had collapsed 45% since September 2021. From 19%, the rate was lowered to 14.0% in the final four months of 2021, and after a pause, has now been cut by another percentage point each in August and September of this year. Monetary policy independence has been severely eroded in Turkey. President Erdogan believes that raising interest rates lifts inflation, and vice versa. Today’s TCMB statement today defends its cut additionally by blaming inflation on many exogenous developments:

Increase in inflation is driven by the lagged and indirect effects of rising energy costs resulting from geopolitical developments, effects of pricing formations that are not supported by economic fundamentals, strong negative supply shocks caused by the rise in global energy, food and agricultural commodity prices. The Committee expects disinflation process to start on the back of measures taken and decisively implemented for strengthening sustainable price and financial stability along with the resolution of the ongoing regional conflict.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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