Erdogan Threatens New Military Operations in Northern Syria

Turkey’s Central Bank Does Not Tinker with Interest Despite Pressure from Erdogan

The Turkish central bank has not messed with interest rates for the fifth month in a row. Due to the rising inflation, policymakers saw little room for a reduction in borrowing costs, which President Recep Tayyip Erdogan is constantly urging.


The primary Turkish interest rate remained at 19 percent. That decision was in line with the average expectation in the market. The real interest rate in Turkey, i.e. the interest rate minus the inflation rate, was almost zero in July. Inflation in July rose to 18.95 percent.

The central bank kept its promise to keep interest rates higher than inflation. This puts bank governor Şahap Kavcioğlu on a collision course with Erdogan. According to the president, the high interest rates cause inflation to rise. Experts label Erdogan’s view as highly unorthodox. The standard policy among economists and central bankers is to raise interest rates to control inflation.

Erdogan repeatedly urged to cut interest rates. However, Kavcioğlu cannot make the cut the president wants until inflation cools down, or he would have to break his earlier promise. Prices in Turkey are rising due to a weaker currency, rising commodity prices and droughts that have hit agricultural crops hard.

Kavcioğlu was appointed bank governor earlier this year. This happened after the resignation of Naci Ağbal, who in turn raised interest rates several times to control inflation. A number of other central bank executives were also replaced earlier by the order of the president.

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