Skip to main content

Ankara goes on risky quest to cut interest rates

Bent on lowering interest rates, Turkey’s president took the extreme step of ousting the central bank governor, but his insistence on rate cuts is fraught with risks that could fan fresh economic turmoil.
Turkey's central bank governor Murat Cetinkaya speaks during a news conference in Istanbul, Turkey, October 27, 2016. REUTERS/Murad Sezer - D1BEUJJAJKAD
Read in 

In a memorable interview in May 2018, Turkish President Recep Tayyip Erdogan advocated low interest rates as a way to reduce inflation, defying conventional economic theory. “When we look at the cause and effect relationship, interest rates are the cause and inflation is the result," Erdogan told Bloomberg during a visit to London. "The lower the interest rates, the lower the inflation. Once we lower interest rates, all cost expenses will go down." 

In the same interview, which dumbfounded financial actors, Erdogan raised the specter of greater government pressure on the central bank once the new executive presidency system took effect after the June 2018 elections. “The central bank is, of course, independent," he said. "Yet it cannot use this independence to set aside the signals from the president, who is the head of the executive."

Access the Middle East news and analysis you can trust

Join our community of Middle East readers to experience all of Al-Monitor, including 24/7 news, analyses, memos, reports and newsletters.

Subscribe

Only $100 per year.