- New BoE research looks at how higher interest rates impact companies
- Further evidence that Türkiye's unorthodox policy won’t slay inflation
As central bankers in the rest of the world zigged, Turkish policymakers zagged. Officially, Turkish inflation is running at 40 per cent year on year, but independent estimates put it at closer to 110 per cent. Despite this, the Turkish policy rate remains in single digits. Following his re-election, president Recep Tayyip Erdoğan said last month that interest rates have “now been reduced to 8.5 per cent and you’ll see inflation will also fall”.
This is unorthodox, to say the least. Despite claiming in May that “eliminating the problems of price increases caused by inflation and the loss of welfare are the most urgent topics of the coming days”, we have relatively few insights into the Erdoğan school of macroeconomics. But in 2018, one of his advisers reportedly set out the theory that lower interest rates would reduce firms’ borrowing costs, which would be passed on to consumers as lower prices – thereby reducing inflationary pressure.