Raising interest rates is one of the most important tools that affect the growth of the Turkish economy and contribute to reducing inflation rates. Central banks often use it for this purpose, as well as to stabilize the exchange rate. In our article, we will explore the various future perspectives for the growth of the Turkish economy after the interest rate hike and the impact of this decision on the economic recovery following the downturn caused by the earthquake that struck the region.
After Turkey adopted a two-year policy of interest rate cuts, which was advocated by President Recep Tayyip Erdoğan, he announced a change in his monetary policy during his new term and a return to the traditional approach in economics. This was manifested through the decision taken by the Central Bank of Turkey under the leadership of the new governor, Hafız Hakkı Erkan, which entails raising the interest rate from 6.5% to 15%, then to 17.5%, and recently reaching 25%. This contributes to the revival of the Turkish economy by containing inflation and stabilizing the exchange rate of the Turkish lira. Despite President Erdoğan's insistence on his conviction regarding lowering the interest rate, giving approval for the interest rate hike and appointing the economic expert Mohammad Şișmek as the Minister of Economy are other indications of the shift in monetary policy in Turkey and the possibility of its return to the traditional method, contributing to the revival of the Turkish economy.
Mohammad Şișmek, the new Minister of Economy in Turkey, is one of the well-known economic figures who have gained approval in global and European markets. It is likely that the new government will work on establishing dealings with the global markets by forming a strong economic team starting from the Central Bank under its new management. This contributes to reassuring global markets and encouraging capital inflows back into the Turkish markets. The interest rate hike aims to reduce inflation and decrease it to the simplest numbers, supporting foreign investment through a series of facilitations, privileges, and exemptions to increase growth rates, boost exports, and provide a source of foreign currency through the energy sector and expand alternative energy projects.
After the two earthquakes that struck Turkish regions, there are significant challenges for the government to restore the economic situation to what it was. Many areas in 11 provinces were affected, and the cost of rebuilding these areas exceeds $105 billion. There are several opportunities for recovery from this economic downturn, the trade deficit, and restoring the trade balance. This includes foreign investments in oil and natural gas exploration. Turkey may transition to self-sufficiency by the end of 2023 by focusing on becoming an energy exporter to all European and global countries in cooperation with Russia.
The Turkish lira experienced a decline of 7.5% following the results of the Turkish elections, which increased concerns about the exchange rate of the lira against the US dollar. This confirms Turkey's exposure to a fierce attack from global investment banks to compel it to raise interest rates, as the low-interest-rate policy did not suit Western countries. Therefore, dealing with the new economic mechanism adopted by Mohammad Şișmek contributes to absorbing inflation, withdrawing liquidity from the markets, and stabilizing the lira after several shocks it will experience.
The President of the "Orcam" Center for Turkish Studies, Ahmed Oweisal, believes that Turkey is on the verge of a major economic breakthrough through many future steps aimed at reassuring investors, especially regarding the Turkish lira, exchange rate, and achieving the necessary economic stability. A rapid and increasing economic growth is expected in light of the current political stability and the formation of the new government, especially after achieving a balance in the trade deficit and discovering energy sources such as gas and oil, as well as local sources of industrial raw materials like lithium. He also called for strengthening current agreements and opening up new markets and projects.
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Here we reach the end of our article about the expectations for the growth of the Turkish economy after the interest rate hike and the new policy adopted to revive the economy, along with the great start it will witness amid the current changes. We also learned about the best holding companies in Turkey, which offer integrated services for investors.
