Turkey has been dealing with very high inflation for nearly a year now. It also seems to be getting worse. At the beginning of the year, prices were still about 50 percent higher than the previous year. This percentage has now exceeded 80 for several months.
According to many, this is partly due to the unusual interest rate policy of the Turkish government. In Turkey interest rates keep dropping, while the prevailing economic theory is that when prices go up you actually raise interest rates.
Higher interest rates make saving more attractive, so consumers spend less. It also makes borrowing money less attractive to businesses and families, which also means less spending. As a result, the demand for goods and services falls and their prices fall.
Turkey’s central bank, under the supervision of President Recep Tayyip Erdogan, thinks otherwise. After a number of previous rate cuts, interest rates fell again in October. By the way, the rise in commodity and energy prices also plays an important role in the rise in inflation in the country.
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