Turkey cuts interest rates despite spiralling inflation

Turkey has cut interest rates again, despite spiralling inflation and a currency crisis.

Its central bank cut its main interest rate by 1%, from 15% to 14%, amid concerted pressure from President Recep Tayyip Erdogan for rates to be cut to stimulate the economy.

He believes pushing interest rates lower will help alleviate red-hot inflation.

It is a view that runs contrary to conventional economic theory.

In a widely-anticipated move, the Turkish central bank opted to continue on its rate-cutting path on Thursday, slashing rates by 1 percentage point.

In a statement, the bank compared its decision to those of other major central banks, which have kept rates low during the coronavirus pandemic to help boost economic growth.

Turkish policymakers have come under increasing pressure from Mr Erdogan to cut rates.

Over the past year, the rate that prices increase in Turkey has climbed above 21%, making it difficult for Turks to plan, save, or spend money on everyday goods and services.

The Turkish lira fell sharply against the dollar after the cut in interest rates, which is the fourth such cut in as many months.

The currency is now worth about half its value at the beginning of the year.

The president and his allies says that lower interest rates will boost Turkish exports, investment and jobs.

But many economists say the rate cuts are reckless.

Last month, the country's inflation rate hit 21.7%.

Normally, central banks raise rates to combat rising prices, but Mr Erdogan has called such tools "the mother and father of all evil".

Although the bank has attempted to bolster the value of the lira by using its dollar reserves to buy the currency, analysts have said it does not have enough firepower to stop the slide.