Turkey's central bank hikes interest rate by 500 basis points to 40%, well above expectations
Turkey's central bank hikes interest rate by 500 basis points to 40%, well above expectations
Turkey's central bank on Thursday hiked its main interest rate by 500 basis points to 40% in a move that was larger than expected by economists.
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I feel like this just absolutely HAS to be sarcasm right?
Really impressive move by the CBRT [Central Bank of the Republic of Turkey] - probing their orthodoxy and getting well ahead of expectations," he said in a note.
"These guys and girls are serious about fighting inflation," he added. "We need to give them credit for that."
Some missing context that might help: with turkey seeing inflation rates of up to 80% (yes eighty), their leader did the opposite of what economists recommended and kept interests rates low. Chaos continued to ensue. The fact that now, turkey is finally changing their decision and increasing interest rates, and aggressively so at that, is promising for the country(compared to their previous trajectory)
It would have been a well-advised idea had it been done when it actually mattered. I'm no economic expert but wouldn't drastically swinging the other way also lead to inflation? For example (made up numbers) if $10,000 is the same as $1 a year ago (low interest rate) and now that $10,000 accrues 80% interest, that would just cause even further inflation?
It reduces spending, because saving is now exceedingly optimal.
Less spending means inflation generally comes down because companies lower prices to meet the lack of demand.
But yes, too high and it can cause even worse inflation, assuming an even capital distribution among the people.
It's incredibly complex to accurately predict what will happen and this is entirely plausible. I can also imagine there being people who have (example) $10,000, wait a year for it to be $18,000, and spend the $8,000 as "free money". Rather than saving it which won't put you ahead of others as they also benefit from the 80% interest (perhaps more so). I'm guessing that's why there's the caveat of even capital distribution which hasn't happened anywhere in the history of life on Earth at any point in time presumably.
Yeah before is better than now, but now is better than later.
To your second point, I'm not entirely certain either, but my understanding is that with a high interest rate, it cuts spending which would drive down inflation. It does this by encouraging people to save ("wow savings interests rates based off of an 80% interest rate!") And discouraging people from buying\getting loans ("buy a home? With 80% interest?! No"). With less spending, companies have to begin to drop prices or increase the amount of product offered to encourage buying.
It is hardly anyhow promising at this point. The real inflation on most economic areas were higher than 150%, as experienced by both the consumer population and the producers. Erdoğan's ruling cabinets had lost all foreign investors' trust completely af few years ago, and now not even his supporters believe in any positive move in the economy so as to bring down prices accordingly.
This sharp and steady increase in the central.bank interest rates in the last few months is nothing but trying to resuscitate the braindead economy with the defibrillators. This only makes it twitch momentarily, nothing more.
Promising considering the situation. Yeah you're right that things should have been done sooner, but at least the better decision being made now rather than even later. As you indicated,it will be interesting to see what will happen now and how much their economy can recover.