Turkish public banks will further lower interest rates on loans as the country has made a promising start into 2020 in line with the targets and projections made for this year, according to the country's treasury and finance minister.
"We had a talk with executives from our public banks regarding interest rates. We agreed to lower interest rates on loans, which currently hover around at 9% and 10%, to a range of 8% and 10%," Albayrak told a meeting with businesspeople in the southern Turkish province of Kahramanmaraş Friday.
Emphasizing that borrowing costs have been declining fast in line with the central bank's rate cuts, Albayrak stressed that these discounts would not be reflected as a loss on the real sector but as a gain.
The easing monetary policy by the Central Bank of the Republic of Turkey (CBRT) since July last year, after having raised the key rate to 24% in September 2018 in the face of rising inflation, allowed public lenders to slash interest rates on housing as well as on consumer and corporate loans. Over time, some private banks also became involved in the process and lowered rates on loans.
The CBRT cut its key interest rate to 11.25% last month from 24% since July 2019 due to the stabilizing lira and a drop in inflation.
Parallel to this, Albayrak noted, interest rates on loans started dropping rapidly.
"Thus, interest rates on commercial loans have declined by an average of 14 points in January compared with the same month of the previous year, while those on housing loans also declined by 14 points on average, interest rates on consumer loans decreased by 16 points and rates on vehicle loans declined by over 15 points," the minister said.
He underlined that the state-owned banks are playing a leading role in efforts to revive the economy. "I hope the steps we have taken set an example for all other lenders in the banking industry," he added.
Inflation, interest rates priority in 2020
Turkey started off well in 2020 with its growth rate to be able to exceed its target of 5% in the first quarter, Albayrak said, emphasizing that the fight against inflation and interest rates will continue to be a priority among policies this year.
Turkey's annual inflation rate rose a little more than expected to 12.15% year-on-year in January, increasing from 11.84% in December 2019, according to official data.
The annual inflation rate, which saw a level of over 25% in 2018, dropped gradually throughout 2019, from 20.35% in January to 8.55% in October. It closed the year with 11.84% in December.
Albayrak said the country closed 2019 with a performance beyond expectations despite all negative expectations regarding inflation, exchange rates, interest rates and growth.
"The inflation rate of 25.2% in October 2018 dropped down to single digits in September and October of 2019 with a stable outlook in the Turkish lira and improvement in the inflation expectations and we closed 2019 with 11.8%. I can say very clearly that the fight against inflation continues in line with our goals," Albayrak said.
The inflation rate is expected to hit 8.5% this year, as laid out in the new economic program for 2020-2022 announced by the government last September. The CBRT recently reaffirmed its view that inflation will converge gradually this year as it made no changes in its midpoint inflation forecast for the end of this year and next. Policymakers at the bank project inflation at 8.2% in 2020.
During a financially and economically turbulent period that kicked off in the second half of 2018 and stretched into the first half of 2019, the Turkish economy was battered by currency volatility, high inflation and high-interest rates, resulting in tumbling domestic demand from consumers and investors.
The country's gross domestic product (GDP) entered a promising era of growth in the third quarter of 2019, taking a turn after three consecutive quarters of contraction.
Economic figures including CDS risk premiums, the Purchasing Managers' Index and exports posted recoveries in the last quarter of 2019 and in 2020.
The economy grew 0.9% year-on-year between July and September of 2019, according to data of the Turkish Statistical Institute (TurkStat). Compared with the second quarter, the Turkish economy expanded by a seasonally and calendar-adjusted 0.4%, its third positive quarter-on-quarter in a row, TurkStat data showed.
In the first two quarters, the economy contracted 2.3% and 1.6%, respectively, on an annual basis. In 2018, the economy posted an annual growth rate of 2.8%, narrowing in the last quarter.
The common market expectation for the fourth quarter estimates ranges from 4.5% to 5%. While the government forecasts a 0.5% annual growth for the whole of 2019, its New Economic Program (NEP) targets a 5% annual growth rate for 2020, 2021 and 2022.