Question: What are the current economic challenges being faced by Turkey and what are the reasons for the same? Are you in favor of the policies formulated by president Erdogan? On the basis of the case study do you suggest RBI to lower interest rates further?.
Turkey’s annual inflation rate soared to 36%, the highest since September 2002. According to data released by the Turkish Statistical Institute, December saw the year’s biggest increase in inflation, with consumer prices up almost 14% compared to the previous month. Despite a plummeting currency and runaway inflation, the country's President Recep Tayyip Erdogan has pursued an unorthodox economic policy in his belief that high interest rates cause inflation instead of helping combat it. He continues to insist on slashing interest rates.
In conventional policy-making, if facing rising inflation then a country's central bank needs to increase interest rates to drive price increases down again. The higher the inflation, the higher rates need to go to combat it. Erdogan has often sought to justify his decision by quoting verses from the Koran which strictly forbids interest. Erdogan has once described interest rates as the "mother and father of all evil." "I cannot stand by those who defend interest," he once said. Inflation has been hovering 20% in recent months, driven by a lira plunge to record lows after the central bank continued to slash its policy rate Under pressure from Erdogan, Turkey's Central Bank has cut key interest rate by 5 percentage points — to 14% — since September. Erdogan has previously fired a number of central bank governors who have not agreed with his unorthodox belief that high-interest rates cause inflation instead of helping combat it. Erdogan has also ignored pleas from the country's business community to return to the "rules of economic science"..
Question:
What are the current economic challenges being faced by Turkey and what are the reasons for the same? Are you in favor of the policies formulated by president Erdogan? On the basis of the case study do you suggest RBI to lower interest rates further?.
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