It is necessary to maintain interest at a low level

One of the doyens of the Turkish economic science, former MP from the People"s Party, columnist of the newspaper "New time", professor Esfender Korkmaz explained Turan agency the rise in interest rates of the Central Bank of the country as follows:

- How can you comment the double rise in interest rates of the bank over the past two months? The rise in interest rates proved to be higher than expected and can you regard this index as normal?

-I believe the rise to be normal, since the market situation rose above 26%.

- "The struggle against inflation" is found to be a reason of the rise in intertest rates. Do you think, this "struggle" will contribute to the problem resolution?

- When it comes to the inflation impact, account has to be taken of real interest rates. In this respect, the inflation impact is exemplary from the current state of economy and the confidence thereto standpoint. Note that claims of the economy with high macroeconomic indices to the rise in the interest rates are restricted. The problem is that in terms of high interest rates the production prime cost rises as interest rates grow. A slumping demand leads to the decline in inflation. In terms of heightened inflation due to the refusal from Turkish lira the demand for dollars and gold will grow while the rise in currency rates will go on rising. Owing to the fact that volumes of home production are linked with imported raw materials, the present situation is characterized by the rise in production prime cost and, hence, growth of market prices. On the other hand, high interest rates result in prime costs , so it is not astonidshing that there is 40% rise in interest rates on consumer credits; this situation takes place in inflation processes within the market structure.

-President Erdogan emphasized once again the necessity of "preserving interest rates at low level". How long will debates over the issue continue?

- Reaction of capital investors after Erdogan"s speech in London and decisions of the Central Bank of Turkey once again confirmed the coherence of President"s statement about the necessity of maintaining interest rates at low level.

- The currency market and Istanbul stock exchange (BİST-100), though in short-term perspective, exhibited a positive response to the rise in intetest rates of the Central Bank. A question arises: will the state of affairs continue or large foreign debts lead to the rise in currency rates?

-Following a decision of the Central Bank the currency rates dropped. Even if the rise in currency rates will go on, it will be short-termed for the following reason: nominal interest rate has risen; however, the most important are real interest rates. By the end of the year the price consumer index (TÜFE) is expected to reach 24% while the real interest - to zero. If no new rise in interest rates takes place, we are sure to back to square one.

At present, there are banks in the country to issue 27.5% loans with 32 days deferred option.

Note that yesterday 5-year shares neared 26% index.

We are aware of the fact that costs of foreign shares of some banks have been reduced by half.

If no shock changes take place in the foreign policy, the rise in interest rates under current circumstance may affect the market within 2-3 months.

-In February 2016 in your first statement during the endowment of the Wealth Fund you voiced doubts in its expediency, and your analysis of the fact three months before the endowment said that the Wealth Fund would do no work at all. What"s your opinion of Predident and Minister of Finance" having joined the Wealth Fund management? Can this step contribute to broadening Turkey"s options for getting credits from abroad?

-The Wealth Fund of each country is instituted at the expense of funds remaining from oil revenues or from increased export indices of trade balance. Note that the Wealth Fund has been instituted in Turkey for uniting state companies operating in the country, an unprecedented case worldwide. There is no fund market of this sort so far. That"s why comments on the issue are so contradictory. Activities of the Turkish Wealth Fund are contrary to the official principles of openness and transparency.