Erdal Sağlam evaluates the Central Bank's interest rate decision: We have only just begun to pay the price for the wrong policy, more is to come

10Haber economy writer Erdal Sağlam, regarding the Central Bank's decision to raise the policy rate by 5 points to 35 percent, stated: "According to the new regulations, the Treasury will bear more of the burden of the increase in the policy rate. While the obligation for banks to hold Treasury securities is decreasing, this is expected to raise bond interest rates. The fact that banks are forced to hold low-interest securities and suffer losses from this will also be reduced in this way." 

Sağlam noted the following in his article titled, "The interest rate hike will not be reflected in loans, the Treasury will bear the burden":

"What does it mean for the Treasury to bear the burden of the increase in the policy rate? The Treasury borrows to finance the budget, and normally the interest rate was determined by the markets. However, in the last 2 years, because they forced banks to buy Treasury securities, banks had to buy them at interest rates determined by the authority. This simplification measure taken should be seen as a positive step towards re-establishing market conditions.

On the other hand, it is inevitable that the Treasury's interest rates will rise according to market conditions. Normally, it is expected that the Treasury will borrow at a rate close to the policy rate. Borrowing at a high interest rate also means a greater burden on the budget at the end of the maturity period. Finally, it should not be forgotten that budget revenues consist of taxes paid predominantly by the broad masses of the public.

In summary; we have only just begun to pay the price for the wrong policy, more is to come."

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News Source: 12punto