Turkey’s Central Bank on Thursday drastically increased the interest rate to 15 percent, following its first meeting on monetary policies under the new governor. The hike is the first in two years after President Recep Tayyip Erdogan decided to slash interest rates to increase economic growth at the expense of the country’s soaring inflation.
In turn, the Turkish lira trended at an exchange rate of 25.45 liras for one US dollar, scoring an all-time low.
Under Erdogan’s unorthodox economic policies, the interest rate was slashed to 8.5 percent, which saw inflation skyrocket up to 85.5 percent in 2022, a 24-year high. The increase resulted in an aggravated cost of living crisis inside Turkey, forcing the government to increase the minimum wage several times.
On Tuesday, the government announced the country’s new minimum wage to be 11,402 liras (approximately $484) starting from the month of July.
Economist Ozgur Demirtas, head of the finance department at Sabanci University, expressed dissatisfaction with the pay raise, as he warned in a tweet that the newly-assigned minimum wage will fall below the poverty line in around two and a half months.
Following his presidential re-election in May, Erdogan appointed Mehmet Simsek as the new finance minister in his cabinet. Simsek previously headed the finance ministry from 2009 to 2015. During his term in Office, Turkey enjoyed a stable economy with the lira trending at a high value.
In his first speech at the handing over ceremony, Simsek said the country has no choice but “to return to rational basis.”
Earlier this month, Simsek appointed Hafize Gaye Erkan, a former Wall Street executive, as the new governor of the central bank, replacing Sehap Kavcioglu, an Erdogan appointee who acquired the position after his unbridled support for a cut in interest rates.
In May, the net foreign reserves of the central bank dropped into negative territory and the annual inflation rate was announced as 39.59 percent, according to the government’s Turkish Statistical Institute.
