The Turkish central bank applied a new cut in interest rates on Thursday despite galloping inflation above 80% and the fall of the lira to record levels, contrary to the rest of the world economies that raise rates to control the prices. The Central Bank of the Republic of Turkey lowered its benchmark rate by one percentage point to 12%. The lira was trading at 18.38 against the dollar, down from a record high of 18.36 in December. The depreciation of the Turkish currency is likely to raise concerns among people, whose purchasing power has been eroded during a series of economic shocks in the country.

President Recep Tayyip Erdogan believes, against orthodoxy, that high rates raise inflation and has lowered borrowing costs despite consumer prices rising 80.21% in August from a year earlier. Traditional economic thinking holds that inflation is combated by raising interest rates. “Inflation is not a crippling economic threat,” Erdogan said in an interview with US network PBS days ago. “There are countries threatened by inflation rates of 8% and 9%. The rate is 80% in our country”.

He said that Turkey will control inflation after the New Year and that supermarkets were well stocked.

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