The Turkish central bank kept the key interest rate stable at its eagerly awaited meeting.

The central bank in Ankara announced on Thursday that it would remain at 14 percent.

The currency watchdogs had previously lowered the key interest rate several times, following the line of Turkish President Recep Tayyip Erdogan, who is opposed to high interest rates.

As a result, the Turkish lira appreciated slightly against the dollar and euro.

13.33 lira were last paid for the dollar and 15.13 lira for the euro.

The exchange rate thus remains at a significantly higher level than in the third quarter of 2021.

Experts had assumed that the central bank would maintain the interest rate this time, but stick to its relatively loose monetary policy in view of the high inflation.

The lira appreciated after the decision against the dollar and the euro and was around 15 lira against the euro in the afternoon.

Inflation had officially reached a record level of around 36 percent in December and is thus higher than at any time under Erdogan's leadership.

Inflation is accompanied by a fall in the Turkish lira, which has lost more than 40 percent of its value against the euro within a year.

idiosyncratic economic policy

The general reason for the situation is the president's economic policy and the pressure he is exerting on the central bank to lower interest rates.

Erdogan believes that you fight high inflation with low interest rates - contrary to common practice.

At the end of December, there were sharp price losses - and a recovery within just one day after Erdogan ordered support measures for the lira.

The president also wanted the Turks to invest their money in lira instead of fleeing into dollars.

The effect of the measures then partially evaporated.

The Turkish President's unconventional economic policy poses challenges for the population and companies, including German companies.

Erdogan's goal

Erdogan wants to use lower interest rates to boost the economy ahead of the 2023 parliamentary and presidential elections and hopes to create jobs as a result. The President urgently needs approval. In the most recent survey by the Metropoll Institute, Erdogan was only fourth on the popularity scale, behind three opposition politicians and potential presidential candidates.

Erdogan also wants to transform Turkey's economy into an export-oriented economy with low wages and a low exchange rate.

At the beginning of January, the President pointed out that exports had increased by around 33 percent last year.

The President is well aware that the population is currently suffering primarily from high food, energy and fuel prices.

"Of course we know that the exorbitant price increases and rising inflation are depressing our nation," Erdogan said recently.

He points to the rise in energy prices around the world and doesn't believe it's a homegrown problem.

Depends on imports

Experts doubt that the conversion to an export-oriented economy will quickly lead to success without accompanying measures or that it will be possible to get inflation under control. Selva Demiralp, economics professor at Koc University in Istanbul, points out that Turkey is dependent on importing intermediate goods such as raw materials. Due to the weak lira, production costs also increased for many companies and the price advantage was limited. "Such a transformation does not take place in a short time," she points out. In addition, innovation-based investments and specialization are also necessary to create a competitive advantage.

The population can also afford imported products less due to a weak lira.

"We all want Turkey to be able to produce more in the country, but using monetary policy in this way is risky and not the right way," she said.

No planning security

"The model produces those who can make a good living from it and those who have difficulties with it," says Thilo Pahl, Managing Director of the German-Turkish Chamber of Commerce in Istanbul.

Some sectors even benefited from the depreciation of the lira, such as some export-oriented German companies in Turkey.

As recently as October, ie before the most recent currency turbulence, a majority of the companies surveyed by the AHK with German capital participation saw their business situation as positive.

The volatility of the currency is a problem, however, because companies have no planning security, according to Pahl.

"Economic management is extremely difficult because it is not calculable." It is difficult, for example, to calculate an offer for a customer who only wants a product in two months, because one does not yet know what the value of the lira will be at all have.

A regulation published at the beginning of January according to which companies have to exchange 25 percent of their export earnings in foreign currency into lira, at least temporarily, is causing uncertainty on the market.

When asked about the risks in Turkey, the German companies surveyed already mentioned in October: the exchange rate and economic policy.