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Nominal interest rate in the country X = real inflation rate in X + Fed Funds rate (about 5.5%) + cost of money Turkey's central bank accepts that Turkey's inf

Nominal interest rate in the country X = real inflation rate in X + Fed Funds rate (about 5.5%) + cost of money Turkey's central bank accepts that Turkey's inflation is at least 30%.

dizhn 3y ago
It is around 60%. Nobody is rushing to the bank to get that sweet -20 interest. Trust me.
- profile53 3y ago
  If inflation is 60% and interest is only 40 percent, wouldn’t everyone be running to the bank to get a loan and buy stuff, knowing the loan will be devalued significantly?
  - unsupp0rted 3y ago
    Yes if loans were being granted by banks
  - mitthrowaway2 3y ago
    The bank can and will charge a much higher interest rate than the central bank does.
  - jacquesm 3y ago
    If they grant the loans they will issue them in Dollars or Euros. And good luck trying to pay those off if your income is in Turkish Lira.
    - dizhn 3y ago
      Actually this is not that common. Instead you get a variable interest rate and nobody wants to get into that either. Business loans are even worse. Banks can recall the loan at any time without a reason. They've caused the bankruptcy of a lot of companies in the past.
  - dizhn 3y ago
    Like unsupp0rted said, access to credit is severely limited. One example. For new car loans, for the price bracket most normal cars are in (800,000 to 1,200,000 try.these are your < 1.6lt commuters) you can get a loan for 30% of the value of the car and the term is 24 months max. For the next bracket it's 20%. The next bracket is over 2,000,000 try and 0% which is basically all cars with an engine larger than 1.6lt and some that aren't. (Excepting electrics I think). I am no math guru but that 0% of the value of the car is probably another word for no loan at all. :)
- raincom 3y ago
  That's bad then: nominal interest rate should be greater than the perceived inflation rate. What does this interest rate hike achieve then? I think, it creates more inflation, instead of curbing inflation.
  - treesciencebot 3y ago
    Interest rates are a mean to control the expected inflation, not the realized one. The expected inflation for 2024 is 36%, which means the current interest rates are sufficient to settle it.
    - dizhn 3y ago
      That would be true if the government instutition in charge of determining actual inflation wasn't fudging the numbers. I was actually suprised to see people discussing this interest increase like it means something.
      - treesciencebot 3y ago
        Both announced and the expected inflation (especially after the changes in the central bank admin, since May) numbers have been globally recognized both by local independent groups (most known one is ENAG) and international financial institutions. Where did you end up with this idea of inflation number not meaning anything?
  - unsupp0rted 3y ago
    They can’t explode the interest rate from 8% to 60% over night. This is the latest in half a dozen incremental increases, each one very high by western standards (but each one tiny relative to inflation). Now they’re finally approximately in the range of “this might actually have some useful effect”.
    - dizhn 3y ago
      They've had to become this drastic because they refused to do it and decreased it instead when exchange rates & inflation were already getting out of hand and relatively small adjustments could have had an effect. It was a weird religious belief and personal "feelings" of the president, who calls himself an economist (among other things).

Nominal interest rate in the country X = real inflation rate in X + Fed Funds rate (about 5.5%) + cost of money Turkey's central bank accepts that Turkey's inflation is at least 30%.

dizhn 3y ago

It is around 60%. Nobody is rushing to the bank to get that sweet -20 interest. Trust me.

profile53 3y ago
If inflation is 60% and interest is only 40 percent, wouldn’t everyone be running to the bank to get a loan and buy stuff, knowing the loan will be devalued significantly?
- unsupp0rted 3y ago
  Yes if loans were being granted by banks
- mitthrowaway2 3y ago
  The bank can and will charge a much higher interest rate than the central bank does.
- jacquesm 3y ago
  If they grant the loans they will issue them in Dollars or Euros. And good luck trying to pay those off if your income is in Turkish Lira.
  - dizhn 3y ago
    Actually this is not that common. Instead you get a variable interest rate and nobody wants to get into that either. Business loans are even worse. Banks can recall the loan at any time without a reason. They've caused the bankruptcy of a lot of companies in the past.
- dizhn 3y ago
  Like unsupp0rted said, access to credit is severely limited. One example. For new car loans, for the price bracket most normal cars are in (800,000 to 1,200,000 try.these are your < 1.6lt commuters) you can get a loan for 30% of the value of the car and the term is 24 months max. For the next bracket it's 20%. The next bracket is over 2,000,000 try and 0% which is basically all cars with an engine larger than 1.6lt and some that aren't. (Excepting electrics I think). I am no math guru but that 0% of the value of the car is probably another word for no loan at all. :)
raincom 3y ago
That's bad then: nominal interest rate should be greater than the perceived inflation rate. What does this interest rate hike achieve then? I think, it creates more inflation, instead of curbing inflation.
- treesciencebot 3y ago
  Interest rates are a mean to control the expected inflation, not the realized one. The expected inflation for 2024 is 36%, which means the current interest rates are sufficient to settle it.
  - dizhn 3y ago
    That would be true if the government instutition in charge of determining actual inflation wasn't fudging the numbers. I was actually suprised to see people discussing this interest increase like it means something.
    - treesciencebot 3y ago
      Both announced and the expected inflation (especially after the changes in the central bank admin, since May) numbers have been globally recognized both by local independent groups (most known one is ENAG) and international financial institutions. Where did you end up with this idea of inflation number not meaning anything?
- unsupp0rted 3y ago
  They can’t explode the interest rate from 8% to 60% over night. This is the latest in half a dozen incremental increases, each one very high by western standards (but each one tiny relative to inflation). Now they’re finally approximately in the range of “this might actually have some useful effect”.
  - dizhn 3y ago
    They've had to become this drastic because they refused to do it and decreased it instead when exchange rates & inflation were already getting out of hand and relatively small adjustments could have had an effect. It was a weird religious belief and personal "feelings" of the president, who calls himself an economist (among other things).