Like many other countries, Turkey is facing rising inflation caused by factors such as the pandemic and the war in Ukraine. Unlike other countries, Turkey has responded by cutting interest rates, not raising them—and the result has been what one analyst calls a "spectacular failure." Official figures released Thursday show that the inflation rate has soared to 70% in April, with the cost of food and nonalcoholic drinks up 89% and prices in the transportation sector up 105.9%, the BBC reports.
Under pressure from President Recep Tayyip Erdogan, who's described interest rates as "the mother and father of all evil," Turkey's central bank started cutting interest rates last September. Analysts blame the move for a collapse in the country's currency, the lira, which in turn kick-started the rise in prices, Reuters reports. Soaring inflation is "about food and energy price increases but also the spectacular failure of monetary policy in Turkey—and it's about the abject and total failure of Erdogan's unorthodox monetary policy," says strategist Timothy Ash at BlueBay Asset Management.
The central bank has kept the interest rate steady at four meetings so far this year, and Erdogan's government continues to insist that inflation will fall under its plan to keep interest low to boost exports and attract investors. "Low interest rates cause inflation. Period. Fact," says Ash, who accuses Erdogan of "trying to rewrite economics to say the opposite, which is the economics equivalent of calling the Earth flat," per Barron's. Erdogan has been in power for nearly 20 years as prime minister, then president, but he could struggle in next year's election if his government fails to tame inflation. (Read more inflation stories.)