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Treasury borrowing aggravates Turkey’s interest rate woes

Ankara’s pressure on banks to lower interest rates has taken a menacing tone, but few seem to acknowledge the government’s own role in the increase of the rates.
Turkey's Economy Minister Nihat Zeybekci makes a speech in Cologne, Germany, March 5, 2017. REUTERS/Wolfgang Rattay - RTS11K0S
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Coming back from the brink of crisis in the fall of 2016, the Turkish economy has regained its growth momentum thanks to global funds returning to emerging economies — the result of the United States’ failure to follow through with promised reforms — as well as supportive measures by the Turkish government, including tax reductions and the encouragement of loans. The rebound, however, has come at a price. Inflation has climbed to double-digit figures, with interest rates on bank deposits and loans following suit.

As a result of government moves to avert the crisis, the budget deficit widened, stoking the need for borrowing. The Treasury became a major borrower on the financial market, pushing up interest rates further. The government is now pressing banks to reduce interest rates, having forgotten its own role in the Treasury’s borrowing demand and the double-digit inflation.

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