The loans compound the crises of the Turkish economy

Bloomberg Agency warned, Monday, of the negative repercussions of the Turkish regime’s excessive granting of internal loans to Turks in light of the lira’s decline to its lowest level in its history.

The US agency said that excessive loans as the weak lira weakened jumps commodity prices to higher levels, feeding expectations that the Turkish central bank will have to keep tight restrictions on granting loans after a sudden increase in interest rates.

The inflation rate in Turkey increased significantly due to the loan “madness” and the rise in commodity prices, in light of the lira’s decline to its lowest level in its history.

The agency said that inflation increased due to a wave of loans granted to consumers in the third quarter, when households took advantage of interest rates after rising inflation to borrow at the fastest pace in more than a decade.

While the government later pulled back from the stimulus program, the lira tumbled to its lowest levels and commodity inflation remained high.

“The costs of food and transportation caused the prices to rise in particular,” said Kan Ayan, an economist at Active Bank in Istanbul.

“Although we are witnessing a gradual slowdown in the following months, the cost of central bank financing will remain high for some time,” added Ayan, who expected inflation to rise to 12.6%.

External borrowing

The Turkish regime has often resorted to external borrowing to support the economy and cover the budget deficit, which exacerbated the Turkish crises.

Turkish financial data revealed earlier that the Ankara government borrowed, during the first four months of this year alone, about 119.9 billion Turkish liras (17.63 billion US dollars), to cover its budget deficit.

Turkey’s total external debt owed within a year jumped at the end of May, amid a sharp decline in the country’s foreign exchange reserves and a deteriorating lira.

The Turkish central bank said, earlier, that Turkey’s external debt owed within a year or less amounted to $ 169.5 billion at the end of May, up about five billion dollars from the previous month.

The weakness of the lira

On September 24, the central bank unexpectedly raised its record rate, the first increase since the currency crash in 2018. Friday, the average cost of cash provided by the monetary authority to commercial lenders was 11.32%, up from 7.34% less than 3 months ago.

However, many economists believe that the policy remains too loose, with interest rates remaining negative when adjusted for inflation.

Turkey’s Treasury and Finance Minister, Berat Albayrak, said last week that the government expects inflation to slow to 10.5% by the end of the year and 8% by the end of 2021.

The policies of Turkish President Recep Tayyip Erdogan and his insistence on supporting terrorism and interfering in the affairs of the countries of the region have exacerbated the Turkish economic crisis.

The country’s foreign exchange reserves at the Turkish Central Bank have fallen below 50 billion dollars, after losing 1.7 billion dollars.