ASSESSMENTS

Turkey’s Risky Inflation Strategy Is Backfiring

Feb 9, 2022 | 17:42 GMT

A customer leaves a currency exchange agency in Istanbul, Turkey, on Dec. 2, 2021.

A customer leaves a currency exchange agency in Istanbul, Turkey, on Dec. 2, 2021.

(OZAN KOSE/AFP via Getty Images)

To reduce inflation, Turkey has focused on cutting interest rates to stimulate investment while hoping to raise exports to a level that would override the country’s dependence on external financing and produce a current account surplus in the balance of payments. But recent data points suggest this strategy is backfiring -- badly. Failure to address macroeconomic problems and resulting economic instability will increase political pressure on Turkey’s ruling Justice and Development Party (AKP) to reverse course, lest risk further eroding the party’s popularity ahead of the scheduled 2023 elections....

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