Turkey’s Prime Minister on rates and inflation
on January 30, 2014 in CBs, Inflation No Comments
Turkey’s central bank prepared to tighten policy further
“Mr Erdogans own resistance to interest rate rises goes deep: on the flight, the prime minister insisted that, contrary to economic theory, increases in interest rates cause inflation. I believe that inflation and interest rates are not inversely proportional but in direct proportion, he told reporters. In other words, the relationship between inflation and interest is cause and effect: the interest rate is the cause, inflation is the result. If you increase the rate, inflation increases. If you reduce it, both drop together. When you think they are inversely proportional you always get much more negative results.