Did Erdogan win the war on the "lobby" of interest?

Zaher al-Baik-Ankara

A fierce battle has raged over Turkish President Recep Tayyip Erdoğan and the Central Bank of Turkey over the past few years. One of its recent rounds has been the dismissal of Erdogan, the head of the central bank, Murad Gintinkaya, and the appointment of his deputy, Murad Oisal, instead of him to try to encourage borrowing and consumption. Economic growth in the country, while some Turkish economic circles saw this move as risky.

The enemy of interest
On more than one occasion - during the last period - Erdogan drew sharp criticism of Turkish banks; they are making unfair profits, caused by high interest rates, despite the country's multiple economic difficulties, considering that the banking system governed by the so-called "interest rate lobby."

Hence, his recent decision to dismiss the governor of the central bank, who repeatedly refused to cut interest rates for good economic reasons from his point of view; lowering the price with high inflation and pressure on the exchange market could threaten the price of the lira, and push savers towards foreign currency holdings and disposal of the local currency, Which poses a direct threat to the Turkish economy.

In the first meeting of the central bank under his new boss, the bank decided to cut interest rates for the first time in nearly five years, 425 basis points (4.25%) to drop interest rates from 24% to 19.75%.

Contrary to the expectations of politicians and economists, Turkish markets have quietly accepted the decision to cut interest rates, and there have been no disturbances, despite very big warnings over the past few weeks that a cut in interest rates would lead to a new collapse in the value of the Turkish currency and the stock market.

Erdogan sees high interest rates as "the curse of evil and evil" and has vowed more than once to fight them to tackle inflation, encourage investment and development projects in the country, the cornerstone of the governments of justice and development for 17 years of rule.

The Turkish president leaves only an opportunity and warns against the risks of high interest rates on the economy. He calls himself an "interest rate foe" and clearly and openly opposes the rise in interest on bank loans.

"If you try to make loans with such high benefits, there is no doubt that investments will be stalled and stopped, we have cut interest rates and inflation has fallen," he said. Earlier, he warned that defending high interest rates was a "betrayal".

Benefits of interest reduction
Professor of Political Economy at the University of "Najmuddin Erbakan" Gokhan Bozbash said that President Erdogan's adherence to reduce interest rates comes in the desire to push the economy within Turkey, while the former head of the Central Bank that it may raise the rate of inflation, ; Therefore tends to raise the interest rate to maintain inflation on the one hand, protect the pound against hard currency in which Turkey buys its fuel needs on the other, and encourage the sale of Turkish central bonds.

"The interest rate reduction will bring the Turkish economy several goals, including encouraging investments that create new jobs by providing cheap loans at lower cost, especially to businessmen and investors," Bozbash told Al Jazeera Net.

"Lowering interest rates encourages more SMEs, and thus reduces the unemployment problem. In addition, the reduction encourages young people to borrow from banks at a lower cost."

He pointed out that the reduction in the interest rate contributes to the reduction of prices of goods and services, which have risen in recent months because of the decline in the exchange rate of the Turkish lira, and most importantly, the reduction reduces the burden of public debt because governments are the largest borrower from banks.

Brosbash pointed out that Erdogan's continued pursuit of interest rate cuts is understandable and justified, but banks also have their own mechanisms for setting interest rates, which is only an intermediary that receives depositors' money and resumes lending, both in the form of project financing and direct cash lending. Loans must be preceded by a direct reduction of interest on deposits.

Economists have said that there is a conflict in all countries of the world between the economic and financial policies led by governments, and monetary policy managed by central banks.

The financial and economic policies of Pakistan are mainly focused on the implementation of political plans by which governments seek to satisfy public opinion by reducing prices of goods and services and by appeasing investors by lowering interest rates.

Experts stressed that there are considerations that should be taken into account by monetary policy in determining trends and interest rates. The central bank can not cut interest rates, while there are high inflation rates within the markets because this means erosion of the national currency and its lack of attractiveness to invest. And central banks.