Turkish Central Bank Bows to Erdogan’s Pressure to Cut Rates

September 23, 2021

ISTANBUL — Turkey's Central Bank unexpectedly cut the main interest rate by one percentage point on Thursday, bowing to President Recep Tayyip Erdogan's demand for lower borrowing rates to boost growth.

The bank's monetary committee cut the policy rate from 19% to 18% despite an annual inflation rate of 19.25%. Economists generally view higher interest rates as a curb on inflation but Erdogan has repeatedly said the reverse – that a high rate of interest causes price rises.

The decision sent the Turkish lira to a near-record low of 8.808 against the U.S. dollar.

Timothy Ash, an emerging markets economist for BlueBay Asset Management in London, described the move as "truly idiotic" in a note to investors.

"Huge risk (is) being taken by Erdogan, I think because his popularity is falling and he needs to take a risk to get the economy firing on all cylinders," he added.

The bank's governor, Sahap Kavcioglu, is the fourth appointee to the role since 2019 amid concerns over the bank's independence. He had kept the interest rate at 19% since taking office in March. Erdogan called for a cut in rates last month.

The Turkish economy never fully recovered from a 2018 currency crisis when it was hit by the coronavirus pandemic, causing growing inflation and unemployment.

The country is set for an election in 2023, although an earlier poll could be called by the government, which has faced recent criticism over a range of problems, including its handling of the pandemic, the economy and even summer wildfires and floods.


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