With most of the world's central banks, led by the US Federal Reserve, the European Central Bank, and the Bank of England, raising interest rates almost a year ago in order to curb inflation, which has reached record levels not seen in four decades, countries such as Turkey are resorting to lowering interest rates to achieve the same goal, which raises the question of whether raising interest rates is the only effective way to curb inflation?
Economists believe that raising the interest rate is the only historical means that comes as a result to curb inflation among monetary policymakers, but they point out that it is certainly not the only way, if there is also fiscal policy that plays an important role in confronting inflation, and experts explain that reducing interest rates to achieve to fight inflation, as in the Turkish experience, is a wrong monetary policy in the long term, even if inflation rates fall for a few months.
Tight monetary policy in major central banks
The US Federal Reserve has raised interest rates 8 times since last year, ranging between 4.5 and 4.75 percent, the European Central Bank raised interest rates 5 times to 3 percent, and the Bank of England 10 times respectively to 4 percent.
Turkish Central Bank swims against the tide
While the Turkish Central Bank pursues a policy of lowering interest rates in light of high prices, unlike the world's central banks, under pressure from President Recep Tayyip Erdogan, as the Turkish Central Bank cut the interest rate to nine percent from 19 percent since 2021.
Slowing inflation
The inflation rate in the United States of America for the month of December slowed from 7.1 percent to 6.5 percent on an annual basis, and the head of the US Federal Reserve, Jerome Powell, pledged more interest rate increases in the coming period in order to reduce inflation to the target level of 2 percent.
Inflation in the euro area also declined in January and for the third consecutive month, thanks to the stability of energy prices, to record an annual inflation rate of 8.5 percent compared to 9.2 percent last December, as well as a slowdown in the inflation rate in Britain last December and for the second month in a row, recording 10.5 percent.
It is also noteworthy that annual inflation in Turkey fell last January for the third consecutive month to 57.68 percent, after reaching in October 2022 its highest level in 24 years at 85.51 percent, according to the Turkish Statistical Institute.