Abrar Ahammed Bhuiyan
Cover design: Abrar Ahammed Bhuiyan
With the soaring world energy prices and the disbursement of stimulus packages in the previous year, countries are confronting relatively high inflation. But it is now critical for the citizens of Turkey as the country's core inflation is at 17.62%(Nov 2021). It all started when the central bank of Turkey cut its interest rate for the third successive month to 14% in November while most of the emerging market economies raised them. President Recep Tayyip Erdogan has pledged to keep the interest rate lower. Cutting the interest rate repeatedly has its consequences. The lower interest rate in the economy has been discouraging foreign investors, and the country has been facing a surging capital flight. In 2021, the lira has lost its value by 31%. Change in the consumer price index is 21.31% year-to-year as of November 2021. As the country is heavily dependent on imported goods, citizens became concerned as consumer goods are becoming more unaffordable due to the falling currency.
In this article, we will try to know what are the variables that we should look into for analyzing the situation, why the interest rate is the most important tool when it comes to controlling the inflation and exchange rate, and why the decisions of the present Turkish government are not aligned with the classical view of economics.
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