Inflation in Turkey reached 68.5 percent in March, the highest level in over a year. The key interest rate is already 50 percent. Why is inflation still rising?
The Central Bank has begun a cycle of interest rate increases, the cost of loans has risen significantly. But it will take a while before the fruits of the current policy can be reaped. After the presidential election, the central bank took over an overheated economy. And although the key interest rate has now been raised to 50 percent, real interest rates are still negative. Macroeconomic imbalances have also prevented the central bank from slowing economic growth as much as it needed to. Inflation is likely to decline again in the future. My colleagues at Koç University and I predict an inflation rate of 50 percent by the end of the year.
Also read: Turkish economy – through the valley of tears
Would you recommend German companies to invest in Turkey?
Yes. The best the government can do is stick to current policies. In a year the worst could be behind us. Turkey has a young population and strong demand. Foreign companies looking to expand their businesses are encountering an economy that may soon emerge from the downturn.