Is the Erdogan rate of interest price hike theory actually in play?

Since 2012, the President of Turkey, Recep Erdogan, has been calling that the rate of interest results in price rises.

He further added that the entrepreneurs would be coerced to reduce their share because of high interest rates. At that time, the policy rates were nearly six percent (5.8%) percent.

But, the fair market interest rates were soaring approximately thirteen to fourteen percent (13-14%). Being an economist, he believes that interest rate is the real issue with is directly related to inflation.

Erdagon recently repeated the claim stating;

“As interest rates fall, inflation will fall. The real problem is interest. I am an economist.”

Recently, the Foreign Policy (FP) magazine has reacted to his observations in the best possible way. It stated that greater interests condense price hikes by decreasing the rate of economic advancement.

If national banks maximize the price of loans, it will exert stress on the banks in Turkey. The banks will, in return, beat a significant share of that debt on a regular basis.

In the meantime, all the debts are provided by the Turk banks themselves for a prolonged time period and stable interest rates. The hike of interest rates by the central bank raises the price of banks minus growing their income.

This has resulted in a credit crunch. As the cutting back of lending by banks has resulted in less buying by clients, thus, the businesses finance less, and the rate of economic growth decelerates.

There are multiple opinions on the influence of interests on price hikes, but they reach on a decision that escalation in interest rates slackens the economy.

This is how central bankers create this boom and bust sequence, but, the magazine has provided a partial picture of the effects of interest rates on loaning and money pile up and ultimately on price rises.