Turkey’s inflation rate rose to its highest rate to 36.08% by the end of 2021. This is the highest in 19 years.<\/p>\n
The rise in the inflation rate was supported by the decline of the lira, and the demand of President Recep Tayyip Erdogan to borrow cheaper.<\/p>\n
During December, consumer price inflation rose by 36.08% on an annual basis. This is the highest level since September 2002.<\/p>\n
Turkey’s inflation rate rose sharply from 21.31% in November.<\/p>\n
Inflation rates exceeded the average estimate of 27.36% in a Bloomberg survey of 19 analysts.<\/p>\n
Turkey’s central bank has cut its benchmark interest rate by 500 basis points since September. The move come as part of a series of moves encouraged by Erdogan, who has attacked rising borrowing costs. He considered them as a challenge to businesses and a brake on economic growth.<\/p>\n
The cut in interest rates caused the lira to depreciate, which led to higher consumer prices.<\/p>\n
The lira regained some of its losses in December after Erdogan introduced a mechanism that promises to compensate lira holders when the currency weakens to a certain level. However, the currency is still about 31% weaker than it was on September 23, when the central bank started cutting interest rates.<\/p>\n
The acceleration of inflation and the cut in interest rates by the Turkish Central Bank led to a decline in the real interest rate on the lira to minus 22.08%. This is the lowest real return among emerging markets.<\/p>\n
The decision to cut the central bank\u2019s benchmark interest rate by 5% led to a 44% drop in the value of the lira last year. This made it the worst of all the major currencies tracked by Bloomberg.<\/p>\n
The currency weakened after the December inflation report, and was trading at a decrease of 2.3% as of 10:30 a.m. local time.<\/p>\n