Turkey is dependent on imports for a large part of its energy and Turkish companies and households are faced with significantly higher costs for gas, which is driving inflation in the country and affecting purchasing power. Food is also becoming more and more expensive, partly due to the consequences of the war in Ukraine. In March, Turkish inflation was still more than 61 percent.
Despite high inflation, the interest rate in the country is relatively low. Contrary to the consensus among economists, President Recep Tayyip Erdogan believes that high interest rates lead to high prices. Erdogan wants to use the cheap lira to help his country’s industry, because it will make it cheaper for other countries to buy Turkish products. However, this fall in prices also fuels inflation, due to the import of fuel, for example, which is actually becoming more expensive.
Erdogan’s influence on the central bank makes it unlikely that interest rates will rise in the short term. The central bank kept interest rates unchanged at 14 percent last month.