Warning from experts to those expecting interest rate cuts: Credit taps will not open until inflation falls

In the banking sector, both those looking to invest and those in need of credit are going through difficult days in the shadow of rising interest rates. The latest data released by the Central Bank of the Republic of Turkey (TCMB) pointed to a visible increase in interest rates for both three-month TL deposits and consumer loans.

According to figures for the week of May 29-June 5, the annual compound interest rate for three-month TL deposits rose by 0.81 points compared to the previous week, reaching 49.3 percent. During the same period, there was a 0.77-point increase in personal loan interest rates, with the average rate rising to 62.13 percent. Across all loan types, the average interest rate was calculated at 62.5 percent.

Economy writer and former banker Prof. Dr. Şenol Babuşcu explained the reasons for the climb in interest rates. "The annual compound rate of this is 49 percent. Banks add other costs to this rate. Bank costs are 7 points. There is also a 5-point profit margin. Therefore, interest rates are rising a few points above 60 percent," he stated.

Babuşcu emphasized that he does not expect a decline in interest rates in the short term, given the current economic situation. He stated that for citizens to access credit at more favorable rates, inflation must first fall below the significant threshold of 15 percent, and interest rates must be pulled down to the 20 percent level. "For citizens to use credit under more favorable conditions and interest rates, inflation needs to fall below 15 percent and interest rates below 20 percent. Reaching these rates is truly very difficult," he assessed.

According to the common view in banking circles, one of the most important reasons for the high level of loan interest rates is the tight monetary policy implemented to combat inflation. The increase in deposit interest rates raises the funding costs of banks, and this is directly reflected in loan interest rates.

The data released in the recent period reveals that both savers and citizens wishing to take out loans are negatively affected by high interest rates. Economists continue to warn against expecting a significant drop in interest rates in the short term.

News Source: 12punto