On Thursday, the Bank of England became the first major central bank to raise interest rates since the pandemic began, due to its fear of higher rates.
The US Federal Reserve will follow in the coming months, with three rate hikes expected next year.
You can argue about the timing or size of interest rate hikes, but nearly every economist would agree that when rates rise quickly, higher borrowing costs can help reduce demand and inflation.
However, not in Turkey, where President Recep Tayyip Erdogan has repeatedly pushed the country’s non-independent central bank to cut interest rates despite rising inflation.
And the bank is doing just that, with potentially disastrous consequences.
Meanwhile, the Turkish lira is dropping.
The currency has lost more than half of its value against the US dollar so far this year and is on track for its worst performance since 1995.
It is difficult to stop the slide because the central bank doesn’t have large foreign exchange reserves.
It makes life itself more difficult.
On Thursday, the Turkish Central Bank cut interest rates for the fourth consecutive month from 15% to 14%.
“Erdogan continued to dictate to the heavily purged (central bank) to test his unorthodox view that low interest rates are necessary to bring down inflation,” said Jason Tuvey of Capital Economics.
In an effort to provide some relief to struggling workers, many of whom have been quick to part with the lira in exchange for foreign currencies, Erdogan announced on Thursday raising the minimum wage by nearly 50%.
“With this increase, I think we have shown our determination not to allow workers to collapse under the weight of the price increase,” the Turkish president said at a press conference.
The move may give Erdogan a political boost, but higher wages are notoriously contributing to inflation, and may exacerbate an already dire situation.
Other countries continue to take a more traditional approach.
Russia raised interest rates by one percentage point on Friday in order to combat rising prices.
London bars and restaurants close their doors.
As the Omicron variant sweeps across the UK, pushing daily coronavirus infections to an all-time high, British businesses are shutting down again – but not due to government directives.
Restaurants and other venues have instead decided they have no choice but to close early for Christmas due to the influx of canceled reservations and concerns about staff health, Julia Horowitz reports.
Farhat Derek, co-owner of East London’s Mangal 2, said it had decided to close a week earlier than planned due to missed bookings and “general uncertainty in the air”.
“It affects employee morale, and it affects us in expecting any reasonable income that could justify it,” Derek told CNN Business.
The shutdowns pose a new threat to the economy and a headache for the government, nearly two years after the pandemic.
He points out that when cases are high enough, people remain willing to avoid going out, despite widespread fatigue due to the pandemic.
The United Kingdom reported an all-time high of 88,376 coronavirus cases on Thursday, with public health officials warning that cases of the delta variant “remain relatively stable in number” while Omicron is “increasing very rapidly”.
In London, the breed is already dominant.
It’s a sight that could soon appear in major cities around the world.