Borrowing costs are skyrocketing in Turkey. President Erdogan’s efforts to cut interest rates have begun to backfire.
Yields on 10-year Turkish government bonds have risen by more than 7 points since the Bank of Turkey began cutting interest rates in September, reaching a record high of 24.9% on the 29th. It exceeded the policy interest rate of one week repo by more than 10 points, and the amount of addition was the largest ever.
Turkey 10-Year Bond Yield and Policy Rate Spread
Source: Bloomberg
Investors are worried that monetary policy is too easing to curb inflation, which has been near its highest in the last decade, against the backdrop of soaring government bond yields. President Erdogan last weekAlthough it supported the lira market by announcing unusual measures, it had little effect on curbing the rise in government bond yields.
In the foreign exchange market on the 30th, the Turkish lira temporarily fell 5.8% to 1 dollar = 13.4262 lira, falling for 4 consecutive days. After hitting a record low of 18.3633 lira on the 20th, it picked up to 10.2512 lira last week, but this increase is shrinking. Yields on 10-year bonds fell 28 basis points (bp, 1bp = 0.01%) to 24.5%.
Meanwhile, Rifato Hisar-Ochrior, chairman of the Union of Chambers and Commodities of Turkey, told the Dunya newspaper this week that some bank lending rates have risen to 35%. According to central bank data, the weighted average was around 21% before the start of the rate cut cycle.
Turkey 10-Year Bond Yield
Source: Bloomberg
news-rsf-original-reference paywall">Original title:
news-rsf-original-reference paywall">Erdogan’s Push for Low Rates Backfires as Borrowing Costs Soar（抜粋）
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