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Monetary Policy - Different Approaches to Tackling Inflation

26th November 2021
It's been an interesting week for monetary policy across the world.
How world’s major economies are dealing with spectre of inflation https://t.co/pbGC8GxZUS
— Guardian Business (@BusinessDesk) November 26, 2021
Turkey is looking to tackle rising inflation by lowering interest rates, but South Korea and New Zealand are adopting the more orthodox strategy of tightening monetary policy with inflation predicted to go above target and pose a threat to the post-pandemic recovery.
Which is the right strategy? Only time will tell. Or rather - I think we already know - but you might still query whether raising interest rates is appropriate if you're dealing with cost-push inflation.
The Turkish lira's on the slide again, with President Erdogan keen to blame external agents for the fact that the currency has declined in the value by 40% in the past year.
As a result, inflation has surged - and the monetary response has been unorthodox, with interest rates having been cut by 4% to 15% in the past year.
The consensus view is that inflation is set to rise further, and I hope you might be able to explain why a depreciating currency would have an inflationary effect.
The FT has this article on what the collapsing lira might mean for the Turkish economy.
What the lira collapse means for Turkey’s economy https://t.co/fVP4tiBu2D
— Financial Times (@FT) November 24, 2021
The South Korean central bank will not be the only one to think this over the next 12 months
— Chris Bailey (@Financial_Orbit) November 25, 2021
"The bank also raised its inflation outlook to 2.3% for this year and 2% for 2022, suggesting further rate hikes to come"https://t.co/LqmDQTMDQg
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