Countries that produce in the fields of industry, agriculture and technology have no difficulty in finding an economic balance with the policies pursued. Real and nominal interest rates, inflation, currency movements, loans, risk premiums… There are many confusing concepts in doctrines and fundamental economic teachings. However, the relationship and discussions between interest rates and exchange rates are actually just understandable†

The Central Bank’s rate cut since 2021 has hit the record-breaking dollar almost weekly since June 8, 2022 for quite some time 17 Fluorescent Level We saw. So why, why does Turkey’s economic policy affect the exchange rate differential, which permeates every corner of our lives, in a way that citizens do not want?

If the Central Bank lowers the market interest rate, the banks also lower the deposit rate:

Typewriter1984 Editor-in-Chief and Economist Enes Ozkan†People want to protect the value of their money against inflation, they can use different instruments for that. The most commonly used tool is to lend your money to a bank, also known as a deposit.In short, the bank where you deposit 100 TL in your pocket into your account uses this money, gives you a share with the profit it makesie it pays interest. For example, if the bank gives 19% interest, your 100 TL will increase after one month at this rate.

NOTE: The interest rate announced by the Central Bank is called the “market rate”. Banks base the interest they add to your deposits on the market interest rate.

Commercial banks depend on the market rates announced by the Central Bank for the interest payment they will make on the amount deposited in your account. Market rates and banks determine the deposit rate by looking at the new interest rate. This relationship is directly proportional. If the central bank lowers market interest rates, banks will also lowers the deposit rate† Less interest is paid on the money in your account and your interest income decreases.

If the deposit rate falls when inflation is high, people show a high demand for various investment instruments to protect their money: dollars for example.

When banks lower the interest rate on your 100 TL due to the decision of the Central Bank, you may want to evaluate your money in several ways. In central economies, that is, in cases where the decision-makers are institutions and individuals, the most preferred alternative instrument is foreign exchange investment. Gold and other valuable currencies, especially the dollar, may be preferred. Enes Ozkan, “In that case, the dollar was the most used vehicle in Turkey.‘ he says, adding:

†When you import, you usually pay the price of this import in dollars. By holding dollars in your hand, you integrate into international markets. If you want to protect your money if interest rates fall, you also get dollars. As the demand for the dollar increases, so does the price of the dollar.†

The latest inflation rate announced by TUIK is 19%, as announced by the Central Bank. well above the market rate† Apart from that, the higher inflation felt by citizens in Turkey is reducing confidence in the figures released by TURKSTAT.

Moreover, the depreciation of TL at exchange rates results in you paying 100 TL even if you import the service, commodity or product that you imported for 10 dollars, that is 50 TL yesterday, for 10 dollars today. This is reflected in the prices of the products on the shelves, purchasing power begins to decline, As a result, inflation is rising.