Rates climb as inflation remains stubbornly high

Dünya Executive - - COMMENTARY -

The Central Bank’s lifting of interest rates has kept the exchange rate under pressure. But it has had another effect too. As the Central Bank raises the costs of money, banks have looked for resources elsewhere by raising interest rates on deposits, which has also led to higher rates on loans.

If we take a look at the Central Bank’s records, we see that lira-denominate­d commercial loans have seen a one-point increase in interest rates over the last seven months, as of April. Lira-denominate­d personal-finance loans have not seen a rise in rates worth mentioning, but car loan rates have risen by a little more than one point, while home loans have declined 0.6 percent.

Deposit rates rise

It’s not just loans that have seen a rise in rates in the last seven months. Interest paid on lira deposits have climbed by almost one point. Rates paid on dollar and euro deposits have been slower to rise. It is important to note the Central Bank data on this is comprised of the whole banking system and it does not give informatio­n on each of the extreme values.

However, that does that mean that there is no informatio­n on the extreme values. Another look at the Central Bank’s records shows that one or more banks are offering 20 percent interest on lira accounts. One or more banks are paying 10 percent interest on dollar and euro-denominate­d accounts. These are lender rates under the current circumstan­c- es. Yet we do not know how widespread these rates are, whether they are simply on-paper. The Central Bank announced these as the “maximum interest rates,” as of May 4.

Annual inflation has reached 12 percent. Even if the direction is downward in the coming months, we are in as situation where the annual rate will be 10.5 percent or, in a best-case scenario, 10 percent. That’s the trajectory. When inflation is at these levels, we cannot expect interest rates to fall much at all.

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