Türkiye: the real interest rate is -15%. Debt is not scary, inflation is.
This week, in addition to the US employment data (which we will talk about) , inflation data in Turkey also came out which was a surprise, perhaps not a dark surprise for the Turks.
Turkey's annual inflation rate rose to 69.80% in April 2024, up from 68.50% in the previous month, but lower than market expectations of 70.33%.
However, it was the highest reading since November 2022, driven mainly by the increase in housing and utility prices (55.55% compared to 51.17% in March) and transport (80.39% compared to 79% ninety two%).
Furthermore, inflation increased for clothing and footwear (51.20% against 50.10%), alcoholic beverages and tobacco (78.53% against 62.98%), furniture, household equipment and routine maintenance (67.88% versus 63.72%) and hotels, cafes and restaurants (95.82% versus 94.97%).
On the other hand, food inflation slowed further, falling to 68.50% in April compared to 70.41 % in the previous period. here is an explanatory graph
Meanwhile, core inflation rose to 75.81% from 75.21% previously. On a monthly basis, CPI grew 3.18%, up slightly from 3.16% in March. So it seems to be understood that salaries keep pace with inflation.
Negative real interest rates, and not by a little
Central Bank interest rates have risen significantly , but are unable to keep pace with Inflation, now at 50%, as you can see from the following graph
Deposit rates are 26%, so those who deposit money in the bank lose 42% per year. Interbank refinancing rates are also aligned at 43%. With these negative rates, the carry trade, taking loans to invest where interest rates are positive, goes crazy. Furthermore, no one holds liquidity.
The current account is improving, perhaps we are close to equilibrium
There is something positive: Turkey's current account deficit narrowed sharply to $3.27 billion in February 2024, compared to $9.04 billion in the same month last year.
The goods deficit narrowed broadly to $4.75 billion from $10.53 billion a year earlier, while the services income surplus rose to $2.38 billion from $2.16 billion . On the other hand, the primary income deficit rose to $0.85 billion from $0.83 billion, while secondary income moved to a gap of $0.05 billion from a surplus of $0.16 billions of dollars.
Excluding gold and energy, the current account surplus widened to $2.11 billion, a significant increase from $0.57 billion in the corresponding period last year. So the deficit is also due to the fact that Turks try to invest what is investable in gold, to escape inflation.
The Turkish Lira did not fall further
The fact that the current account is stabilizing is also shown by the fact that the news of rising inflation has not sent the Turkish Lira further down against the dollar, and the currency seems to have achieved some stability
If the current account recovery continues, the Lira exchange rate will stabilize and inflation should finally come back under control, albeit at a high level. However, the economy is growing by 4% on an annual basis and inflation has caused the public debt to fall to 29% of GDP. In short, inflation has its pros and cons.
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The article Turkey: the real interest rate is -15%. Debt is not scary, inflation is. comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/turchia-il-tasso-dinteresse-reale-e-del-15-il-debito-non-fa-paura-linflazione-si/ on Sun, 05 May 2024 09:00:10 +0000.