Under the leadership of Hafize Gaye Erkan, Turkey managed to significantly decrease its interest rate, which was previously set at 50%. It goes without saying that this move has stirred considerable debate among analysts, with some commenting that it competes to be the most tangible policy change the country has made in decades. It is expected that this reduction in interest rates will provide relief to companies and taxpayer households that are experiencing increased levels of strain. However, it is pertinent to highlight that Turkey is grappling with an inflation level of 47%, and measures will be required to prevent borrowing and money supply from increasing, as increased availability of both may lead to even higher levels of inflation. There is a significant concern that this policy will lead to an overstimulated economy, which will further cause price increases. If Turkey is unable to create a balance between investments and affordability, the country will face challenges due to its recent policy. Lower interest rates may increase availability to borrow, but this may also aggravate the already existent inflation.
President Erdogan is working to grow the Turkish economy by prioritizing rapid growth investments in the economy regardless of inflation pressure. While his team is of the opinion that the investments will help grow production capabilities and expand exports, I am unsure this view holds water. Such policies will prove to be effective only for a very short term period, thus Turkey’s future will remain in a sensitive and volatile state. The analysts are concerned and are advising the need for improvement, stressing that inflation rates must be kept in control in order to avert additional shocks to the economy.
The International Monetary Fund (IMF) GDP annual growth prediction of Turkey is 3%, but due to deteriorating economic circumstances globally and locally, the GDP growth may be cut from this to about zero. These include rising energy prices and international recession. It is too early to estimate whether other emerging markets will assist in restoring normalcy or whether Turkey has what it takes to independently rise from these rough patches, so the energy crisis precedent and asteroid Tycoon collapse soft the production economy whispers remain essential aspects of discussion about the country’s chances for fast recovery. So, while lower interest rates can reduce the burden on the economy in the short run, the tourism sector and exports still need to expand and grow. Turkey must commit truly and implement corrective steps. How effectively they are able to do this will be critical.
