High Rates Are Killing Production, Not Just Inflation
The argument cuts to the heart of Turkey’s economic dilemma. High interest rates are supposed to cool demand and slow price increases. In theory, that works. In practice, Turkey’s inflation remains stubbornly elevated while manufacturers, exporters, and small business owners are screaming about the cost of credit. When borrowing costs exceed 50%, businesses don’t just slow down — they stop investing, stop hiring, and in many cases, stop producing altogether.
This isn’t an abstract academic debate. It directly affects every factory owner, every shopkeeper, every person who took out a loan. If rates are crushing supply instead of demand, they’re not fixing inflation — they’re feeding it from a different angle. Kepekçi’s question deserves a serious answer, and the data coming out of Turkey’s industrial sector suggests the pain is real, widespread, and getting harder to ignore.
💬 Levent KAYIRA Commentary
Ekonomik Gündem Analysis: I spent 15 years inside Turkish banks watching rate cycles play out — and Kepekçi is raising exactly the right question at exactly the right time. Turkey’s benchmark rate sits at 46%, and yes, inflation has started to edge down from its 2024 peaks. But look at the industrial production numbers and credit utilization data, and a different story emerges.
Small and medium enterprises — which account for roughly 75% of Turkish employment — are essentially locked out of the formal credit market. A working capital loan at 55-60% annualized cost makes no business sense unless your margins are extraordinary. So what happens? Production contracts, imports fill the gap, and the current account takes a hit. You’ve just traded one inflation problem for another.
The orthodox view says hold rates until inflation sustainably drops to single digits. I understand the logic — Turkey’s credibility with global markets depends on it. But Kepekçi’s point is that the transmission mechanism is broken. Tight money is hitting supply harder than demand in an economy structurally dependent on credit-fueled production.
Watch the next MPC meeting closely. If the Central Bank starts signaling cuts before hitting its inflation targets, this debate will have won. The market already smells it.
Kaynak: Google News Ekonomi