Zero interest rates !?..

We’re about to go through interesting times. As busy diplomatic traffic between the US and Turkey continues, Trump and Putin are holding face-to-face talks regarding a number of matters involving Turkey.

It clearly appears that USD/TRY did not fall into too much decline in Turkey as Euro/Dollar parity rises above 1,16 again. During the weekend, Ankara has delivered the following statement: “Interest rates will be our priority until they hit zero”. Although, in 1973, there was a clear consensus on how “zero interest rate” brings no advantage whatsoever, it seems definitely interesting that the issue is being brought up again and again in Turkey.

First of all, even zero real interest rate is an obstacle to saving, let alone zero nominal interest rate. Today in Turkey, longing for zero rates can only mean that you are looking for cheap funds, and trying to stabilize the exchange rates would be a dangerous attempt.

Ataturk, who is appreciated more today, said the following words during the Izmir Economic Congress in 1923, “Economic systems shall operate under the rules of market economy; the State shall abide by the rules of market economy when surveilling markets, directing them on the right premise and when engaging directly in the industry and trade business”. When we think very carefully about what he said at the congress, I think it we will figure out how and when we missed the boat on a great chance for development, after the early years of the Republic.

In short, Turkish domestic politics today seem like they have become much more attentive to Ataturk’s words. So, I suggest policy-makers to pay attention to Ataturk’s warnings on economy as well.