The Turkish central bank has lowered its key interest rates to mitigate the economic impact of the earthquakes. The interest rate will go down from 9 percent to 8.5 percent. Lower interest rates make borrowing cheaper and thus stimulate the economy.
The central bank thus resumes a series of interest rate cuts that accelerated in 2022. With the interest rate cuts, a demand from President Recep Tayyip Erdogan, the central bank is trying to keep economic growth figures high.
The flip side of this is the cuts have led to the highest inflation in decades. Prices in Turkey rose by more than 70 percent last year compared to 2021.
Erdogan maintains that lower interest rates will ultimately lower inflation. Traditional economics, on the other hand, prescribes higher interest rates against large price increases. The major central banks, such as the ECB, have been raising interest rates for months in a fight against inflation.
With the new interest rate cut, the central bank hopes to absorb some of the damage caused by last week’s major earthquakes. Companies estimate the economic damage to be around 84 billion dollars (79 billion euros).
The quakes in the border area of Turkey and Syria have now officially killed 47,000 people, of which 43,000 in Turkey. The actual number of deaths is expected to be much higher. Millions of people have been left homeless by the earthquakes.
