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Currency Economics - Turkish lira in free-fall despite interest rate rise

Graham Watson

21st November 2021

The Turkish monetary authorities raised interest rates by 1% (or 100 basis points) and saw the currency fall in value by 6%.

And President Erdogan's argument - that high interest rates have been the cause of inflation - seems somewhat detached from economic reality, with most people being of the view that interest rates are a powerful anti-inflationary tool, if the cause of inflation is demand-pull.

Of course, lowering rates, and the subsequent fall in the value of the currency, is likely to worsen the situation - imports will have become more expensive, and exporters will have less of an incentive to keep their costs in check too.

It looks as though the government might have lost control of the economy.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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