Report
How can Turkey get out of hyperinflation?
Since 2018, and even more so since mid-2021, Turkey has experienced very high inflation, which has not reduced household purchasing power thanks to sharp wage increases, but which has disrupted the economy. Exiting from such high inflation through a restrictive monetary policy with very high interest rates would lead to a collapse in activity. The solution that has been used successfully is to: Move to a fixed exchange rate regime against the dollar, in a credible and irreversible manner, thereby lowering inflation expectations; Bear the cost of disinflation, i.e. accept the loss of production that results from the slow disinflation relative to the fixed exchange rate. Continuing to accept exchange rate depreciation would perpetuate the hyperinflation situation.
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