Turkey: will the interest rate hike save the lira?
The Central Bank of Turkey has raised the key interest rate from 17.5 to 25 percent. For years, President Erdoğan resisted high interest rates even as the Turkish lira went into a downwards spiral. But in the last few months the country’s finance ministry and central bank have changed tack. The national press discusses the economic prospects that are now emerging.
A hopeful sign
The interest rate hike points to a return to a more rational fiscal policy, says the oppositional newspaper Sözcü:
“We longed for normality so much that people are actually happy about this. ... The independence [of the Bank of Turkey] is not a luxury, it is a necessity! Basically, it’s about not sacrificing the value of money to short-term interests and the arbitrary goals of political powers. Governments come and go, but the country’s economy is geared towards the future. Therefore, the most positive aspect of this decision is the emphasis on ‘independence’. Everyone knows that interest rates would not be raised if Erdoğan and his team had their way. ... Now at least there is hope.”
A necessary but risky step
The pro-government daily Sabah is optimistic, but also sees dangers:
“Since the decision the positive mood has also been mirrored on the markets. While the banks’ shares shot up, the dollar initially fell by almost seven percent. ... But what is the other side of the coin? After the central bank’s decision deposit rates are expected to increase to 35-45 percent, and lending rates are likely to settle in the 40-50 percent range. Of course this situation could also have a negative impact on the real sector. Hopefully, this phase won’t last long. Because if on top of inflation we have unemployment and a recession, the situation would be even worse than it is now!”