For the first time since the outbreak of the corona plague, the Bank of England (BOE) voted today (Thursday) in favor of raising interest rates from 0.1% to 0.25%, amid rising inflation in the kingdom. Like most of the world’s economies, the Bank of England has lowered interest rates to zero in an attempt to stimulate the British economy, in the face of the extraordinary slowdown imposed by the plague and the closures that came with it.
The central bank is raising interest rates despite the threat of another corona wave these days due to the Omicron variant, which indicates that the fear of inflation in the UK is greater than the fear of the plague and is what ultimately decided in favor of raising interest rates. Inflation in the UK reached 5.1% in November, mainly due to the global supply crisis, which forces a shortage of goods just in the holiday season, as well as due to rising energy prices.
The decision by the Bank of England comes after the Federal Reserve’s announcement yesterday (Wednesday) that three interest rate hikes are planned for next year in order to deal with the exact same threat that threatens the British – the significant price increase. The US consumer price index jumped 6.8% in November, with a similar level of inflation expected in December.
In Turkey, interest rates continue to fall
In Turkey, on the other hand, President Recep Tayyip Erdogan is pursuing a stubborn policy of reducing interest rates to 14% – a reduction of 600 basis points within a few months. The reduction in interest rates, again, has led to a drop in the Turkish lira while threatening the stability of the country’s economy.
Inflation in Turkey jumped to 21.3% year-on-year in November, the fastest pace in Turkey in three years. Since September, when the bank began taking interest rate cuts, the Turkish currency has lost more than 40% of its value – a record decline by any scale. The Turkish lira fell 3.1% today to a new low, below the 15-pound mark. Later in the trading day in Istanbul there was a slight recovery of the Turkish lira, which stabilized again at 15.03 to the dollar.
But despite these inflation rates, and despite the extreme erosion of the exchange rate, the Central Bank of Turkey persists in a strategy of reducing interest rates. Earlier this month, President Erdogan replaced senior officials in the Turkish Ministry of Finance, with a new appointment of a minister from the ruling party, a clear supporter of his policies. President Erdogan is pursuing a clear policy of reducing interest rates to encourage growth in the Turkish economy, with an increased effort to create more jobs. As part of this, President Erdogan announced that the minimum wage in Turkey will increase by 50% starting next year, while ensuring that the uncertainty in the Turkish economy will end soon, with the help of new economic measures, which he did not elaborate on.