Once again, inflation in Turkey, during the month of April, was higher than expectations, reached a new high in the past decades and continued to call into question the economic strategy pursued by President Recep Tayyip Erdogan.
According to data published by Turkish statistical authorities on Thursday, the annual inflation rate in April was 69.97%, with prices rising by another 7.25% compared to just the previous month. The result was higher than analysts had expected.
A critical contribution to the further rise in inflation has been the higher recorded prices of transportation-related products, such as fuel, with an annual change of 105.9%. The inflation rate in food products was 89.1%.
The sharp rise in inflation rates in Turkey, which in April recorded its highest value in 20 years, began at the end of last year and continued due to the effects of the war in Ukraine on energy and food prices. On international markets.
But in the Turkish case, unlike in most other countries, the monetary policy of the Central Bank also plays a fundamental role in exacerbating inflationary pressures.
Since September last year, the Central Bank of Turkey, contrary to what was expected in the face of soaring inflation, has implemented a more expansionary policy. Initially, it embarked on a series of cuts in benchmark interest rates, which have fallen five percentage points and have kept them steady at 14% in recent months, a value that means, in real terms (discounting inflation), interest rates are too high. negative levels.
that it Very unconventional central bank policy It is the result of the declared will of the head of state. Erdogan, together with the head of the Central Bank who appointed him, decided to bet on an economic strategy based on the idea that only with the increase in the competitiveness of the Turkish economy and the transition from an external deficit to a surplus. , Will it be possible to bring about inflation permanently. To reduce the values. And to ensure increased competitiveness, and this defends the president, it is necessary to lower interest rates and devalue the currency.
The government and central bank, in their forecasts, continue to bet that this strategy will eventually succeed and that inflation will eventually decline after it peaked at 70% in June.
However, that number was already reached in April, and many doubts remain that Turkey will be able to halt this cycle of price hikes without having to implement a more restrictive policy, which could lead the economy into recession.
At the moment, what the Turkish authorities are trying to do is, while maintaining interest rates at 14%, to take measures to encourage businesses and households to use the Turkish lira, to stop the devaluation of the currency, and to reduce the taxes applied to it. Some goods to ease high inflation.
In other economies, central banks are now, after several years of highly expansionary policies, beginning to withdraw monetary stimulus to cool consumption and investment, thus combating rising inflation. In the United States, the Federal Reserve decided this Wednesday Raising the key interest rate by half a percentage point. In the eurozone, the expectation, for now, is that Central bank interest rates began to rise during the second half of this yearwhich has already caused the Euribor interest rate to rise, which acts as an indicator for most loans granted in Portugal.
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