5 ms·

Turkish central bank raises interest rate to 42.5% to combat high inflation

37 points by vinnyglennon 3y ago

greesil 3y ago
Maybe they should dollarize too /s
- deleted 3y ago
  [deleted]
borissk 3y ago
So Erdogan finally admitted his economic theories of keeping interest rates low are complete garbage. One would think that after years of causing massive damages to the Turkish economy a president should resign, being proven wrong time and time again.
- hohu 3y ago
  [dead]
- mc32 3y ago
  At some point you have to take the medicine. Argentina is finally doing it —after decades of kicking the can down the road.
- vasco 3y ago
  https://tradingeconomics.com/turkey/interest-rate https://tradingeconomics.com/turkey/interest-rate - set it to 10Y, you'll see it's been up to 25% before.
pajep 3y ago
Does interest rate resolve in USD or turkish lira? Isn't it a no brainer if its pays in USD to invest, as long as turkish central bank is solvent?
- imachine1980_ 3y ago
  turkish lira, venezuela month before a the hiper inflation and total default risk have 30% in dollars. 42% is dumb the inflation 42.5% so probably banks are making bucks here taking debt under inflation rate and lending over it, like happens in aregentina betwen 2008-2014.
- deleted 3y ago
  [deleted]
- the_mitsuhiko 3y ago
  The interest rate applies to lira bank accounts. It wouldn't be a good investment, the lira lost 36% to the dollar YTD.
- okl 3y ago
  That's why they have restricted it, e.g., https://www.reuters.com/business/finance/turkey-imposes-restrictions-lira-loans-fx-rich-companies-watchdoganadolu-2022-06-24/ https://www.reuters.com/business/finance/turkey-imposes-rest...
- xxpor 3y ago
  Lira.
- mertd 3y ago
  Lira obviously. There used to be a Lira savings account scheme which was protected against FX risk by the government to encourage savings in Lira but I believe that's no longer offered.
- yetanother12345 3y ago
  FWIW, around a month ago I researched how to open a Turkish bank account in order to benefit from the high interest rate level by depositing some money there, but I had to give up. It seems to be hard to impossible for a non-resident. (The OP talks about central bank rates and a recent increase, but consumer banks have had accounts with high rates (relative to other investment alternatives) for a long time. Just nowhere as high as this.)
IgorPartola 3y ago
My layman understanding: raising interest rates is supposed to slow down businesses from growing as fast. The way businesses often respond is by downsizing the workforce. So then you get inflation that’s still high + high unemployment: not a great recipe. Does anyone with a background in economics have more insight into this?
- andrewljohnson 3y ago
  Stagflation is the name for that, it last happened in my country in the 1970s.
- barumrho 3y ago
  In economics, everything affects everything else, so you are trying to solve for the equilibrium. For example, high unemployment (not the only immediate effect) in turn will reduce consumption either directly due to loss of income or anticipation of it. Traditionally, there is the Phillips Curve which states that unemployment and inflation have inverse relationship. https://en.wikipedia.org/wiki/Phillips_curve https://en.wikipedia.org/wiki/Phillips_curve
- seizethecheese 3y ago
  Downsizing the workforce leads to lower inflation (fewer people spending money on a supply of goods and services that are relatively fixed in the short run.)
- creer 3y ago
  Raising interest rates slows business expansion. It limits new investments by making borrowing more expensive - and borrowing is often an ingredient of business expansion. (In the case where inflation was high because businesses were over-ambitious) Businesses downsize the workforce either (1) because they are in difficulty already, (2) or because they expect a contraction in their business and want to be better prepared, (3) or because they now doubt that their earlier bold plans will work out. Raising interest rates is often done too late, too much, and too long - which then starts an economic contraction. A "soft landing" is rare so some businesses take measures in advance of that contraction. But normally interest rate increases are because the economy is expanding too fast (which causes price inflation) - normally that's a low unemployement time. Business response will raise unemployment a little but not much. What WOULD raise unemployement significantly is a contraction because interest rates stayed high too long. An oil shock is a different kind of beast: you get price inflation even though there wasn't excess growth. Still... 42% is a signal things are out of control. At that stage are businesses still borrowing at all? So will this increase have much effect?
sampa 3y ago
erdonomics at its finest PS say what you want, it's been more than a year of high inflation and you can't say that it ruined the economy
ponector 3y ago
Rates are too low if you compare with Argentina.
alephnerd 3y ago
I thought interest was hudud? [0] /s Tbf, Erdogan's Islam excuse was bullshit. He kept interest rates low because his family has a controlling interest in construction companies in Turkiye. The company that built Istanbul Airport and runs IGA are run by relatives for example [1] and instigated their conflict with the UAE after Emaar "stole" the Bucharest (edit: Belgrade) Waterfront redevelopment from them [2] Turkiye has so much potential. If only the political class wasn't so shit. It can actually become a first world country in 10-15 years if an IMF regime is forced on them. [0] - https://www.bloomberg.com/news/articles/2021-12-19/turkey-s-erdogan-says-islam-demands-lower-rates-and-so-does-he https://www.bloomberg.com/news/articles/2021-12-19/turkey-s-... [1] - https://mapa.group/our-projects/ https://mapa.group/our-projects/ [2] - Met a businessperson working on that tender at IST. Good conversation. I'll never say no to an excuse to expense Yeni Raki (edit: Tekirdag Gold).
- cbeach 3y ago
  We don't call China "中国," so why are we calling Turkey "Turkiye"?
  - mc32 3y ago
    In English it’s Turkey, in Turkish it’s the other spelling with diaerisis, which don’t exist in English. It’s as silly as suddenly spelling Germany like they do in German. However people are free to use whatever word for a country they want.
  - alephnerd 3y ago
    Czechia doesn't exist. It should be the Czech Republic! Macedonia will never be North Macedonia! Greece, NATO, and EU ascension be damned! Rename Eswatini to Swaziland! Zaire shall live on! /s Why the double standard for Turkiye? It's just pure racism.
    - junofan 3y ago
      > Why the double standard for Turkiye? It's just pure racism. It’s Türkiye, not Turkiye: https://www.un.org/en/about-us/member-states/turkiye https://www.un.org/en/about-us/member-states/turkiye I don’t appreciate being called racist.
mrs6969 3y ago
Cant believe USD/Lira rate was 1.5 in 2010, it is around 30 now. This is how you end up with a dictator ruling the country with corruption.
SeanAnderson 3y ago
Just a quick chart to put this into perspective: https://i.imgur.com/PfjCI82.png https://i.imgur.com/PfjCI82.png Turkey's exchange rate with USD peaked at $0.85 on the dollar in '08. Bulgaria, which shares a border with Turkey, peaked at $0.80 the same year. Now, 15 years later, Turkey is at $0.03 while Bulgaria holds $0.56. Whew!
- deleted 3y ago
  [deleted]
crabsand 3y ago
Interest rates were intentionally kept low after the pandemic to let wheels running. Erdogan had an election to win and made "interest is forbidden in Islam" as a slogan for economic policy and also lower rates was good for unemployment, which is good for elections. Also you can't just say "we'll devalue the currency in your pocket so you'll be poorer but this is necessary to make industrial exports to be competitive with China" to your voters. The new plan after the election is single digit inflation in 2027. I don't think he will live that long to see it, he's ill, but yeah, it's the usual economics after all.

37 points by vinnyglennon 3y ago

greesil 3y ago

Maybe they should dollarize too /s

deleted 3y ago
[deleted]

borissk 3y ago

So Erdogan finally admitted his economic theories of keeping interest rates low are complete garbage. One would think that after years of causing massive damages to the Turkish economy a president should resign, being proven wrong time and time again.

hohu 3y ago
[dead]
mc32 3y ago
At some point you have to take the medicine. Argentina is finally doing it —after decades of kicking the can down the road.
vasco 3y ago
https://tradingeconomics.com/turkey/interest-rate https://tradingeconomics.com/turkey/interest-rate - set it to 10Y, you'll see it's been up to 25% before.

pajep 3y ago

Does interest rate resolve in USD or turkish lira? Isn't it a no brainer if its pays in USD to invest, as long as turkish central bank is solvent?

imachine1980_ 3y ago
turkish lira, venezuela month before a the hiper inflation and total default risk have 30% in dollars. 42% is dumb the inflation 42.5% so probably banks are making bucks here taking debt under inflation rate and lending over it, like happens in aregentina betwen 2008-2014.
deleted 3y ago
[deleted]
the_mitsuhiko 3y ago
The interest rate applies to lira bank accounts. It wouldn't be a good investment, the lira lost 36% to the dollar YTD.
okl 3y ago
That's why they have restricted it, e.g., https://www.reuters.com/business/finance/turkey-imposes-restrictions-lira-loans-fx-rich-companies-watchdoganadolu-2022-06-24/ https://www.reuters.com/business/finance/turkey-imposes-rest...
xxpor 3y ago
Lira.
mertd 3y ago
Lira obviously. There used to be a Lira savings account scheme which was protected against FX risk by the government to encourage savings in Lira but I believe that's no longer offered.
yetanother12345 3y ago
FWIW, around a month ago I researched how to open a Turkish bank account in order to benefit from the high interest rate level by depositing some money there, but I had to give up. It seems to be hard to impossible for a non-resident. (The OP talks about central bank rates and a recent increase, but consumer banks have had accounts with high rates (relative to other investment alternatives) for a long time. Just nowhere as high as this.)

IgorPartola 3y ago

My layman understanding: raising interest rates is supposed to slow down businesses from growing as fast. The way businesses often respond is by downsizing the workforce. So then you get inflation that’s still high + high unemployment: not a great recipe. Does anyone with a background in economics have more insight into this?

andrewljohnson 3y ago
Stagflation is the name for that, it last happened in my country in the 1970s.
barumrho 3y ago
In economics, everything affects everything else, so you are trying to solve for the equilibrium. For example, high unemployment (not the only immediate effect) in turn will reduce consumption either directly due to loss of income or anticipation of it. Traditionally, there is the Phillips Curve which states that unemployment and inflation have inverse relationship. https://en.wikipedia.org/wiki/Phillips_curve https://en.wikipedia.org/wiki/Phillips_curve
seizethecheese 3y ago
Downsizing the workforce leads to lower inflation (fewer people spending money on a supply of goods and services that are relatively fixed in the short run.)
creer 3y ago
Raising interest rates slows business expansion. It limits new investments by making borrowing more expensive - and borrowing is often an ingredient of business expansion. (In the case where inflation was high because businesses were over-ambitious) Businesses downsize the workforce either (1) because they are in difficulty already, (2) or because they expect a contraction in their business and want to be better prepared, (3) or because they now doubt that their earlier bold plans will work out. Raising interest rates is often done too late, too much, and too long - which then starts an economic contraction. A "soft landing" is rare so some businesses take measures in advance of that contraction. But normally interest rate increases are because the economy is expanding too fast (which causes price inflation) - normally that's a low unemployement time. Business response will raise unemployment a little but not much. What WOULD raise unemployement significantly is a contraction because interest rates stayed high too long. An oil shock is a different kind of beast: you get price inflation even though there wasn't excess growth. Still... 42% is a signal things are out of control. At that stage are businesses still borrowing at all? So will this increase have much effect?

sampa 3y ago

erdonomics at its finest PS say what you want, it's been more than a year of high inflation and you can't say that it ruined the economy

ponector 3y ago

Rates are too low if you compare with Argentina.

alephnerd 3y ago

I thought interest was hudud? [0] /s Tbf, Erdogan's Islam excuse was bullshit. He kept interest rates low because his family has a controlling interest in construction companies in Turkiye. The company that built Istanbul Airport and runs IGA are run by relatives for example [1] and instigated their conflict with the UAE after Emaar "stole" the Bucharest (edit: Belgrade) Waterfront redevelopment from them [2] Turkiye has so much potential. If only the political class wasn't so shit. It can actually become a first world country in 10-15 years if an IMF regime is forced on them. [0] - https://www.bloomberg.com/news/articles/2021-12-19/turkey-s-erdogan-says-islam-demands-lower-rates-and-so-does-he https://www.bloomberg.com/news/articles/2021-12-19/turkey-s-... [1] - https://mapa.group/our-projects/ https://mapa.group/our-projects/ [2] - Met a businessperson working on that tender at IST. Good conversation. I'll never say no to an excuse to expense Yeni Raki (edit: Tekirdag Gold).

cbeach 3y ago
We don't call China "中国," so why are we calling Turkey "Turkiye"?
- mc32 3y ago
  In English it’s Turkey, in Turkish it’s the other spelling with diaerisis, which don’t exist in English. It’s as silly as suddenly spelling Germany like they do in German. However people are free to use whatever word for a country they want.
- alephnerd 3y ago
  Czechia doesn't exist. It should be the Czech Republic! Macedonia will never be North Macedonia! Greece, NATO, and EU ascension be damned! Rename Eswatini to Swaziland! Zaire shall live on! /s Why the double standard for Turkiye? It's just pure racism.
  - junofan 3y ago
    > Why the double standard for Turkiye? It's just pure racism. It’s Türkiye, not Turkiye: https://www.un.org/en/about-us/member-states/turkiye https://www.un.org/en/about-us/member-states/turkiye I don’t appreciate being called racist.

mrs6969 3y ago

Cant believe USD/Lira rate was 1.5 in 2010, it is around 30 now. This is how you end up with a dictator ruling the country with corruption.

SeanAnderson 3y ago

Just a quick chart to put this into perspective: https://i.imgur.com/PfjCI82.png https://i.imgur.com/PfjCI82.png Turkey's exchange rate with USD peaked at $0.85 on the dollar in '08. Bulgaria, which shares a border with Turkey, peaked at $0.80 the same year. Now, 15 years later, Turkey is at $0.03 while Bulgaria holds $0.56. Whew!

deleted 3y ago
[deleted]

crabsand 3y ago

Interest rates were intentionally kept low after the pandemic to let wheels running. Erdogan had an election to win and made "interest is forbidden in Islam" as a slogan for economic policy and also lower rates was good for unemployment, which is good for elections. Also you can't just say "we'll devalue the currency in your pocket so you'll be poorer but this is necessary to make industrial exports to be competitive with China" to your voters. The new plan after the election is single digit inflation in 2027. I don't think he will live that long to see it, he's ill, but yeah, it's the usual economics after all.