Turkish President Recep Tayyip Erdoğan has renewed his push to lower interest rates, claiming that cutting rates is essential to reducing inflation and stabilizing the country’s economy, after a return to more traditional monetary policies with consistent rate hikes implemented by the Turkish Central Bank since June 2023.
In a speech outlining his government’s economic priorities on Saturday, Erdoğan reiterated his controversial belief that “interest rates must go down for inflation to go down.”
He identified 2025 as the year Turkey will embark on a significant rate-cutting trajectory, describing it as a “non-negotiable” component of his administration’s economic plan. Erdoğan argued that high inflation, exacerbated by a volatile currency and housing costs, remains the root cause of economic instability in Turkey.
“Our program’s ultimate goal is to compensate our people for the financial losses caused by exchange rate and inflation imbalances,” Erdoğan said. “We will mobilize all tools at our disposal, including monetary policy, to bring inflation to its proper level.”
His remarks came shortly after the Turkish Central Bank reduced its key interest rate for the first time in nearly two years. On Thursday the bank’s monetary policy committee lowered the policy rate from 50 percent to 47.5 percent, signaling a potential easing cycle after months of maintaining high rates to curb inflation.
Central Bank Governor Fatih Karahan justified the decision by citing “improvements in inflation expectations and pricing behavior.”
Turkey has faced prolonged economic turmoil, marked by persistently high inflation and a sharp depreciation of the lira.
Erdoğan’s unorthodox stance against high interest rates, which he has likened to the “mother of all evils,” has drawn widespread criticism from economists. Many argue that his policies contributed to the economic instability seen in recent years, including inflation peaking at 85.5 percent in October 2022.
Under mounting pressure, Erdoğan shifted toward orthodox monetary policies in 2023, allowing the central bank to implement substantial rate hikes to combat inflation. The policy rate had been raised to 50 percent by March 2024. The measures helped inflation slow for six consecutive months, with the annual rate dropping to 47.1 percent in November. However, the central bank’s latest forecast suggests inflation will reach 44 percent by the end of 2024, higher than its previous estimate of 38 percent.
Erdoğan’s renewed interest rate reduction rhetoric raises concerns among experts who fear a return to unorthodox policies could reverse recent economic gains. Critics have long warned that cutting rates prematurely, particularly in the face of ongoing inflationary pressures, risks destabilizing the economy further.