Turkish Lira hits year low as Turkey holds interest rates

ISTANBUL: The Turkish lira touched its low for the year on Thursday as the central bank once again refused to raise interest rates to combat spiralling inflation and support the troubled currency.

The dollar was worth 17.67 liras when the central bank announced it was keeping its policy rate at 14 percent. The central bank has not raised its benchmark rate since completing a highly controversial round of cuts in December.

The rate reductions set off an economic crisis that has eroded people’s living standards and complicated President Recep Tayyip Erdogan’s chances in next year’s general election.

The Turkish leader is a lifelong opponent of high interest rates and has fired central bankers who have raised rates to bring inflation under control.

Erdogan believes high interest rates push prices higher — the opposite of conventional economic belief.

Turkey’s official annual rate of consumer price increases has reached 78.6 percent and is on course to keep breaking records last set in the late 1990s.

Independent estimates by Turkish economists suggest the real figure could be substantially higher.

But Erdogan’s team argues that inflation will start to drop off early next year.

The central bank blamed inflation on rising food and energy costs caused by Russia’s standoff with the West over its invasion of Ukraine.

Higher prices in Turkey “are not supported by economic fundamentals”, the central bank said in a statement.

Fitch Ratings warned last week “that Turkey’s economic policies are increasingly interventionist and unpredictable”.

They have “not only failed to attract fresh capital inflows to fund the current account deficit and ease balance-of-payment pressures, but could also damage confidence, creating risks for deposit stability or external financing,” Fitch warned.