Erdoğan: Interest rates should support investors

President Recep Tayyip Erdoğan has stressed that interest rates should function as an incentive for investors, saying that there are many places, including Turkey, that have suffered much from high interest rates. Delivering a speech to ambassadors and business figures from the Foreign Economic Relations Board of Turkey (DEİK) at the Presidential Palace in Ankara late on Wednesday, Erdoğan drew attention to what he called the distorting effects of high interest rates on the economies of numerous countries, saying that interest rates have no meaning if they do not incentivize investments in the economy.

Reiterating that it is necessary to immunize production and trade worldwide from shocks, Erdoğan expressed his opinion that high interest rates played a role in distorting the balance in production and trade, adding that interest rates should not be a tool causing the suffering of societies, but should extend a helping hand to investors. He said interest rates in developed countries are low, giving the U.S., eurozone countries and Japan implementing rates of 0.5 percent, 0 percent and -0.1 percent, respectively, as examples. In contrast to these low rates, Erdoğan said that in Turkey, markets implement interest rates fluctuating between 15 percent and 17 percent when commission fees are charged. He said that given these rates, it is not possible for investors to undertake fruitful projects since even if they attempt to carry out their projects through bank loans, they can eventually get into serious financial trouble.

At its May meeting, the Central Bank of the Republic of Turkey reduced the upper band of the interest rate corridor (marginal funding rate) by 50 base points from 10 percent to 9.5 percent while leaving the policy rate (one-week repurchase agreement rate) and the lower band (borrowing rate) unchanged at 7.5 percent and 7.25 percent, respectively. The bank lowered the upper band by 1.75 percent in total over the past four months. Further cuts are also expected at the June meeting.