Commercial loan interest rates in Turkey have dropped by 10 points to 26 percent in the last three months thanks to the decline in the country's risk premium and measures taken to manage the economy.
While trade tensions between the U.S. and other countries, particularly China and EU, last year decreased the risk appetite in global markets, U.S. Federal Reserve (Fed) interest rate hikes led to the implementation of tight monetary policies in developing countries' central banks.
With the effects of speculative attacks against the Turkish economy, the U.S. dollar-Turkish lira exchange rate saw a historic high at over 7.00 on Aug. 13, while it steadily recovered thereafter.
As of Jan. 21, the Turkish lira has appreciated 22.4 percent against the dollar, the 10-year government bond yields decreased by 617 base points, and the credit default swap (CDS) premium decreased by 256 points according to their peak points in August, Treasury and Finance Minister Berat Albayrak told Daily Sabah in an exclusive interview Tuesday.
The Central Bank of the Republic of Turkey (CBRT) hiked its benchmark interest rate due to the Fed's interest rate hikes, double-digit inflation and volatility in the exchange rates. The CBRT has raised its policy rate, a one-week repo auction rate, from 7.5 percent to 24 percent since 2016.
In addition to the increase in financing costs abroad, the increase in deposit rates in Turkey to 25 percent led to the 15-year peak in commercial interest rates.
Measures taken by the government against speculative volatilities in the exchange rates and the halt of the tensions in the foreign policy, especially with the U.S. over pastor Andrew Brunson, were positively reflected in the markets.
The New Economic Program (NEP), announced in late September, the Full-Scale Fight against Inflation Program and regulations related to financial and the real sector also affected many sectors positively.
While the measures and the reduction of geopolitical risks have decreased Turkey's CDS premiums, they also led to the lowest level in the last three months in deposit and loan interest rates.
According to CBRT data, the weighted average interest rates for banks' loans reached 39.36 percent on Oct. 12, while commercial loan interest rates stood at 35.37 percent, the peak of the last 15 years.
The falling inflation, sustainable fund flows into Turkey, waning currency volatility, a continuing balancing period in the economy and decreasing geopolitical risks have paved the way for a fall in loan interest rates.
On July 11, the interest rate in commercial loans fell by 935 basis points in the last three months and retreated to 26.02 percent. In the same period, the interest rate for consumer loans recorded a 661 basis points fall and dropped to 32.75 percent. The weighted average interest rate on deposit accounts by banks fell by nearly 230 basis points in one month and decreased to 20.75 percent.
Meanwhile, the banking sector has introduced affordable interest rates by restructuring consumer and commercial loans in addition to credit card debts.
The 10-year government bond yields also have seen significant decreases in the last couple of months. During yesterday's trading, the 10-year bond yields were down 1.089 percent at 15.62 percent.
The Turkey 10 Years Government Bond reached a maximum yield of 21.53 percent on Aug. 13, 2018, and a minimum yield of 7.91 percent on March 23, 2015. The yield required by investors to loan funds to governments reflects inflation expectations and the likelihood that the debt will be repaid.