Inflation in Turkey, in itself, is hardly important for India and most other countries. However, we have a very interesting and important lesson from there.
The Central Bank of the Republic of Turkey (CBRT) has reduced its interest rate despite the high inflation in Turkey. Most economists have found the policy surprising. The CBRT has reduced interest rates from 24 per cent in mid-2019 to 8.5 per cent at present. What’s even more intriguing for many people is that the inflation rate has not risen further or stayed the same in recent quarters; it has halved! How did this happen?
It is true that low interest rates can encourage spending on capital formation, housing, consumer durables, etc. And, this additional spending can push inflation higher. However, though the CBRT’s own interest rate is very low, it is important to make a qualification here. Interest rates in the market are not actually very low there; this is particularly true in
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