IT HAS BROUGHT A DEBT BURDEN OF 1.8 TRILLION TL

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Revised May, 2024 – Resource, Turkey iResidence, Foreigner Residence Services.
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IT HAS BROUGHT A DEBT BURDEN OF 1.8 TRILLION TL

With a bright idea to push CBRT 19% interest rates down to 14% in one week by the Erdogan government force, the political pressure put the Central Bank to start to cut interest rates, and the rise in inflation accelerated due to the effect of dollarization on the domestic economy. Former Treasury Undersecretary and economist explained the cost of the ’interest is the reason, inflation is the result’ theory with figures. While the Central bank Director can change every 5 years, Turkey has changed 3 Directors in 5 years for government mind-set.

Analyzing the repercussions of reducing the policy interest rate to 14 percent with a 500 basis point reduction in 4 months on the economy in his personal website, Calculated that interest rate cuts have created a cost of 1 trillion 878 billion TL to the national economy in foreign debt alone. The last available external debt stock data is for the third quarter of 2021. Accordingly, Turkey’s total foreign debt stock is $ 453.5 billion. having calculated that the foreign debt has increased by only $ 3.4 billion in dollars compared to the end of 2020, but the TL equivalent has increased by 2 trillion 683 billion with the dollar exchange rate at the level of 13.30 lira at the end of the year.

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CREATED NEW TAXES

The dollar forecast for the end of 2021 was 9.16. If it had been completed in accordance with forecasts, the external debt burden would have been TL 805 billion. All these calculations show that an increase in the debt burden of 1 trillion 878 billion TL (2,683 – 805) is the cost of an interest rate cut to the national economy.” and noted that this increase in the debt burden forces the public sector to levy new taxes and make new borrowings.

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THE COST OF INTEREST RATE CUTS TO THE TURKISH NATIONAL ECONOMY

– The dollar could have closed the year around 9 TL: it finished at 13.30 TL.

– Inflation would have been at the level of 16-18%: with 36.08%, it reached its highest level in 19 years.

– Loan interest rates would remain lower: there would be no need for applications such as currency-protected deposits.

– CBRT reserves would not melt down: in 3 months, the CBRT’s net reserves, excluding swap transactions, melted by $ 18 billion.

– foreign debt stock, which is $ 453.5 billion: it has created a debt burden of 1.8 trillion TL.

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TL SAVINGS IN BANKS HAVE MELTED

In Turkey, year-end inflation in 2021 was 36.1% above forecasts, well above the official Central Bank targets, and also experienced the highest levels after 2002. Moreover, we have not yet seen the peak in the 19-year high inflation.

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IT’S GETTING HARDER TO STOP AT TL

The Central Bank’s medium-term target of 5% is 6 times, and the October Inflation Report closed 2021 2 times higher than the forecast of 18.4%. Since the Central Bank has not responded with any rate hike, Turkey’s real interest rate also remains in deep negative territory.

The real interest rate (one-week repo rate minus inflation) is currently at minus 22.1% and is decisively behind other developing countries. Moreover, with the growth of competition between banks in recent days, TL deposit interest rates have increased up to 24. But even the depositor who receives the highest interest at this rate for his money in banks earns a real interest of minus 12.08%. It is stated that negative real yields will make it even more difficult to keep TL-denominated savings as inflation doubles in the coming months.

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THE DOLLAR STARTED THE NEW YEAR FAST

exchange rates also rose sharply with the opening of markets in Turkey, which entered 2022 with historic needle-to-thread hikes. Before the critical inflation data, the dollar started the day with an increase of more than 4%. the dollar, which closed 2021 with 13.4500, tested the level of 13.9356 yesterday morning. The dollar completed its first trading day of the year at 13.1000 TL.

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