Economist Mahfi Eğilmez talked about the inflation-interest relationship in his last article. In his article, Eğilmez explained that the AKP cannot put the country in a low interest environment in the current economic system.
Stating that the cause-effect relationship between inflation and interest has come to the fore recently, Mahfi Eğilmez stated that in order to answer this question correctly, the cause-effect relationship must be established correctly. Mahfi Eğilmez, who explained these inflation models at length, stated that inflation emerged in the form of cost and demand inflation and that the exchange rate and inflation problem could not be solved forever by playing with interest rates.
Eğilmez said the following about the relationship between interest and inflation:
However, it is not possible to solve the exchange rate and inflation problem forever by increasing interest rates. Therefore, it is necessary to set up the relations equation correctly and create the solution accordingly. The relationship discussed today looks like this: Inflation – Interest
However, this is only the tip of the iceberg and it is not possible to produce a permanent solution by looking at it. At best, temporary solutions can be provided by increasing the interest rate.
The real situation is as follows:
As the Central Bank meeting approaches, interest-inflation debates are reviving. Interest is the result of inflation, but what is inflation the result of?
The part we are discussing is just this last Inflation – Interest rate issue. Therefore, we cannot produce a permanent solution. In order to produce a permanent solution, we need to start from the beginning with how we can eliminate the high risk of the country. When its end depends on structural reforms, we skip all of them and come to the last relationship and remain unsolved: Inflation – Interest Rate.
The way to reduce inflation is to reduce risks. If the risks decrease, the rates decrease, if the exchange rates decrease, inflation decreases, and if inflation decreases, interest rates decrease. If we start from the end and lower the interest rate, the risks increase, the process reverses, and eventually we have to raise the interest rate.
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