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Turkey’s Low Rates Prevent Household Bankruptcies, RenCap Says

Turkey’s policy of keeping interest rates low has helped households and small businesses avoid bankruptcy, while increasing the risk of accelerating inflation, according to Renaissance Capital.

“Many households and corporates are practically insolvent,” with low incomes and high debt, Yildiz said. “An aggressive rate hike would mean these indebted households and corporates could cause a mass bankruptcy.”

Turkey’s central bank has kept its main rate at a record low 5.75 percent since August to spur growth, while varying banks’ cost of funds and reserve ratios in a bid to control the current-account deficit and inflation.

Inflation accelerated to a three-year high of 10.6 percent in January, while the 12-month cumulative current-account gap was $77.8 billion in November, about 10 percent of estimated gross domestic product. A shortfall of that scale represents a risk to economic stability, Fitch Ratings said in November.

Inflation is likely to reach a peak of 13 percent in the first half of this year before settling at 10 percent by year- end, according to the report.

The low rates triggered a “borrowing spree” by poorer Turks, Yildiz said. About 55 percent of total loans in Turkey are taken out by individuals with incomes of less than $1,200 a month, he said.

While short-term rates should be around 15 to 20 percent to control inflation, political pressure on the central bank from Prime Minister Recep Tayyip Erdogan and the increasing indebtedness of households is likely to mean rates remain low, according to Yildiz.

Turkey’s interbank overnight repurchase rate is currently 9.07 percent, according to an index by Turk Ekonomi Bankasi AS.

To contact the reporter on this story: Benjamin Harvey in Istanbul at

To contact the editor responsible for this story: Gavin Serkin at

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