Economy in Turkey: Negative gap between inflation and interest rates and footsteps of devaluation
As Turkey struggles with problems in economy, the Central Bank has raised the policy rate once again – despite the like of President Erdogan who has always stated that inflation is the result of high interest rates.
Now we know, due to the Central Bank’s decision to increase the policy interest rate from 30% to 35%, credit card interest rates will also rise. Not only credit card card holders will not be affected by this certainly but also many companies in the real sector using credits etc.
“Inflation is running rampant, and interest rates are chasing it. Starting from November 1, 2023, the contractual interest rate on credit cards will increase to 3.71%, and the cash advance interest rate will be 4.47%. However, when a 30% tax is added, the annual default interest for someone who withdraws cash advances will reach 75%. Default interest will be collected if the minimum amount is not paid.”
Turhan BOZKURT, A prominent economist sharing his opinions and assessment on his YouTube Channel has drawn attention to some vital points inserted below, about the near future of Turkish economy.
“Footsteps of devaluation…”
The fact that the dollar has not gone down despite the interest rate hike has a different meaning this time. The signs of devaluation are being heard and this time from Northern Europe.
A report published by the SEB Emerging Markets Explorer, an important company in finance sector says, ‘Despite the new economic management (Mehmet Şimşek), it does not seem possible for inflation to permanently decrease in Turkey. As the Local Government Elections of March 31, 2024, approach, the tightening measures in monetary policy will be limited and short-lived. The pressure on the depreciation of the Turkish Lira is mostly mitigated by non-market measures. However, we expect a significant drop in the Turkish Lira next year. Turkey is one of the few exceptions that bear the cost of accumulated policy mistakes in the economy. Deinflation is possible in other countries except Turkey.’
Will dollar / TL rate climb much higher in 2024?
Based on data and observation shared in said report and our evaluations we understand the government will do its best trying to hold dollar TL rate below 35 until after local election – having to do with a desired win in election, certainly.
However right after the election as the administration will not be able to keep the pressure on dollar by realizing back-door sales to the market, the dollar TL rate will most likely climb to 45-50 level round May/June and again to 57-58 level in October/November 2024.
Therefore it could be best for companies in particular to base their planning for 2024 accordingly to be able to cope with the developments to prevail in Turkey’s economy.
