Case-1 : Turkey's High Inflation Crisis (2021-2023)

Background : Between 2021 and 2023, Turkey experienced one of the world's fastest inflation spikes, with annual inflation peaking at over 85% in October, 2022. Instead of raising interest rates, the Central Bank of Republic of Turkey (CBRT) cut its policy rate from 19% (in early 2021) to 8%5 (by early 2023), following direct political pressure from the executive branch.

This loss oss of central bank independence led to a sharp decline in investors' confidence. The Turkish Lira lost more than 44% of its value in 2021, causing imported goods (fuel, food, machinery) to become far more expensive. Capital outflows increased and foreign reserve depleted sharply as the government attempted to defend the currency.

To stabilize markets, the CBRT adopted alternative measures: Selective credit control (restricting some loans while expanding others), Higher reserve requirements, FX-protected deposit schemes to reduce dollarization.

Problem : The CBRT-adopted tools failed to restore stability because policy interest rates remained too low compared to inflation. As a result, inflation expectations become unanchored, and macroeconomic instability persisted.