Commercial loan rate fell by 10 points

Dünya Executive - - COMMENTARY - Alaatt n AKTAS Economist

One of the most important indicators of the economy is interest rates. There is a downward trend in both deposit and loan rates. The deposit rate peaked on September 21, and then there was a decline. According to the loan types, peaks in loan rates were seen at different times. Vehicle loans reached a peak on September 21, commercial loans on September 28, consumer loans on October 12 and mortgages on October 26. Loan interest rates fluctuated after these dates but in general, declined.

The latest data, from November 16, show that commercial loan rates experience­d the steepest decline in the period following their peak. The average interest rate of all banks in commercial loans was 35.94 percent on September 28 but dropped to 26.44 percent on November 16, a 9.5 percentage point decrease. The week of November 9-16 alone witnessed a decline of 5.44 points.

Why do nterest rates fall?

One could say that things are good in the economy so interest rates are falling. But that fails to explain the actual situation. Interest is the rental cost of money and this cost must be determined freely according to supply-demand conditions. You can intervene from time to time but the interventi­on will lack permanence.

As I said, commercial loan rates decreased by 5.44 percentage points in the week of November 9-16. What happened in the economy in a week that such a decline occurred? Interest can be reduced at such a rapid pace by instructio­ns given to state banks - an “Obey the order, no matter what” scenario which works, but only for a short time. This is what happened in the week of November 9-16. The rate cuts of public banks were followed by other banks, leading to an overall decline. But the important thing is to ensure permanence, and only economic conditions can maintain such a trend in the mid- to long-

term, not orders.

When growth decelerate­s

Then comes high savings rates: At the beginning of these economic conditions, the banks have to have the resources to convert into loans. But the current economic conditions are working in the opposite direction. Money is cheap not because of its abundance but because demand for it is decreasing, because our growth rate is dropping. It is very likely that we went beyond a slowdown in the fourth quarter; growth likely turned negative. Under these circumstan­ces, less demand for money is inevitable. Interest, the rental cost of money which is not in demand, will naturally fall. Consequent­ly, the decline in the interest rates is also due to the contractio­n in growth.

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