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Following a post-pandemic period of expansionary monetary policy, stimulus checks, and economic growth, the U.S. economy has been confronted with a new stage of high inflation. The annual rate of inflation in the U.S. hit , its highest rate in more than three decades. While this has been a recent concern, it’s important to note that in the world are experiencing higher inflation rates than usual. Perhaps most negatively affected by high inflation is Turkey; its inflation rate has reached roughly 20%, the second-highest in the world behind Argentina (52%).
Amidst Turkey’s spiraling inflation, its currency, the Lira, has lost nearly since the start of the year. Turkey’s currency has been slowly declining in value since 2018 as a result of geopolitical tensions, current account deficits, shrinking currency reserves, debt, but most significantly, to cool inflation. Turkish President Recep Tayyip Erdogan is responsible for this decision, as he has control of Turkey’s central bank and has stated multiple times that he will continue to cut interest rates despite high inflation. Last Tuesday, the Lira plunged 10% in a single day following Erdogan’s announcement that there would be no turning back from his unconventional policy of cutting interest rates –
Although facing mass protests and nationwide disapproval, Erdogan and other Turkish officials have mentioned that they are in favor of a declining Lira, that it will provide for a competitive exchange rate that will encourage exports. Ironically enough, Turkey’s , including Oyak Renault and Mercedes Benz Türk, have been , as extreme fluctuation in the foreign currency rate has brought exports almost to a standstill.
Turkey’s situation shows just how sensitive an economy can be to changes, or a lack of changes, in monetary policy when faced with surging inflation. Other countries should carefully analyze the way Erdogan’s decisions have affected the Turkish economy and strategize how best to fight inflation while minimizing damage. U.S. Fed Chairman Jerome Powell, for example, will be tasked with this enormous responsibility; several leading economists suggest his course of action should involve slowly raising interest rates and , deploying a more traditional route to curb inflation.
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