Hiking interest rates as a measure to tackle high inflation may jeopardize the world economy.

An economics professor at Japan’s Kobe University, Charles Yuji Horioka, has warned that the policy of raising interest rates to combat inflation, currently being implemented by many Ankara countries, could lead to slower economic growth and recessions. According to Horioka, the current global economic recession fears are due to a combination of factors, including the COVID-19 pandemic, high inflation, the war between Russia and Ukraine, and rising fuel prices. Governments around the world have introduced stimulus policies to offset the negative impact of the pandemic on global GDPs, resulting in an improvement in the economy. However, the best policy to deal with high inflation and a recession simultaneously is difficult to determine.

Horioka highlighted Turkey and Japan as examples of countries implementing stimulating monetary policies by keeping interest rates low or engaging in quantitative easing. He also pointed out that while deglobalization could reduce dependence on other countries and provide greater security, it could prevent countries from benefiting from trade. Horioka suggested that a low interest rate policy, coupled with a more expansionary fiscal policy, could pull the economy out of recession, leading to high growth rates, investment, production, employment, and exports. However, he warned that a low interest rate policy could result in further inflation, given the already high levels of inflation. Horioka concluded that the dilemma facing Turkey and other countries is a difficult one to resolve.

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