Osman Şenkul
In Turkey, where a high-interest-rate policy has been in place for 20 years, the first step in this regard was taken at the extraordinary Central Bank (TCMB) meeting held on Sunday, 25 June 2006, when overnight interest rates were raised by 225 basis points. At the TCMB’s second extraordinary meeting in 2014, interest rates were raised by 550 basis points, with the weekly repo rate rising from 4.5 percent to 10 percent and the overnight lending rate from 7.75 percent to 10 percent. At the TCMB’s third extraordinary meeting, held on 23 May 2018, the late liquidity window was also raised by 300 basis points to 16.5 percent.
Subsequently, at the meeting held exactly eight years ago today (13 September 2018), interest rates were raised by 625 basis points to 24 percent. These interest rate hikes continued at subsequent meetings, peaking at 50 percent on 22 August 2024; following this, after being cut to 42.5 percent at the third consecutive meeting (6 March 2025), the rate was raised again at the meeting held on 31 May 2025, reaching 46 percent. Following this meeting, the TCMB interest rate fell to its current level of 37 percent through a series of cuts.
The fact that interest rates in Turkey were maintained at such high levels, despite the occasional small cuts, has naturally driven up costs considerably; consequently, inflation has risen at almost the same rate, with the annual increase in consumer prices reaching 85.51 per cent in October 2022, according to official data from the Turkish Statistical Institute (TÜİK), whilst the annual increase in domestic producer prices also rose above 100 per cent in the same month.
Meanwhile, the vast majority of the public—who, apart from the small consumer loans they had taken out, did not face interest rates directly—were forced to live under the pressure of inflation, which, far from being curbed, was accelerating its rise, fuelled by cost increases exacerbated by high interest rates; in short, the high-interest-rate policy, which was in fact intended to curb demand, was actually suppressing supply due to the impact of rising costs; consequently, rather than falling, inflation continued to climb.
To put it another way, as these developments illustrate, the unstoppable twin of rising interest rates and unchecked inflation in Turkey has been fuelling inflation for years. Consequently, inflation cannot be brought down permanently without a fundamental solution to the current account deficit; nor can interest rates be lowered due to the fear that ‘the exchange rate will rise’.
The business community in Turkey has also been voicing, with increasingly vocal protests, that it has long been under serious pressure in terms of production, costs and competitiveness due to the high borrowing costs resulting from tight monetary policies based on high interest rates—policies implemented in large leaps under the pretext of combating inflation.
In the business community’s increasingly vocal protests in recent years, particular attention is being drawn to the “risk of bankruptcy”, with statements warning that “high interest rates are driving companies into financial distress and bankruptcy”. In addition to the tightening of commercial credit limits, the business community emphasises that banks are “demanding excessive collateral” due to the adverse conditions prevailing in the market. It also points out that high borrowing costs are dampening the appetite for production and investment, and warns that the industrial and manufacturing sectors, unable to access finance, are falling behind in global competition.
Citing these reasons, which business representatives frequently list in their statements, they are calling for banks and the Central Bank of the Republic of Turkey (TCMB) to accelerate the process of interest rate cuts following the liquidity measures.
Precisely at this time, when the vast majority of the public – who have endured difficult times for many years under the weight of high inflation and unemployment – are increasingly making their voices heard, and similar demands are beginning to emerge from the business community, the government has also announced its new “Medium-Term Programme” (MTP), outlining its three-year macroeconomic and fiscal roadmap.
In Turkey, the MTP announced by the government is generally defined on a global scale as the “Medium-Term Expenditure Framework (MTEF)”, the “Medium-Term Fiscal Framework (MTFF)” or, more simply, the “multi-annual budgeting system”. In Turkey, the government’s MTP is drawn up to set public expenditure ceilings, inflation targets and growth forecasts.
The United Kingdom pioneered this type of programme, which is prepared in various forms worldwide, with the first implementations beginning in the 1960s. This was followed by countries such as Australia, Canada and New Zealand, which are also members of the Commonwealth of Nations. In the EU too, following the Maastricht Treaty (1992/1993) – which saw the bloc evolve beyond an economic structure into a political union and officially adopt the name ‘European Union’ – Member States have been presenting medium-term budgetary structural plans to coordinate common fiscal objectives.
Furthermore, organisations such as the United Nations Industrial Development Organisation (UNIDO) establish regional or global medium-term programme frameworks (MTPF) covering participating member states. Dozens of countries, with the support of the World Bank and the IMF, implement Medium-Term Expenditure Frameworks (MTEFs) to align their national development plans with annual government budgets.
OVPs and similar initiatives, through which countries and international organisations prepare and announce to the world their objectives and programmes regarding their economies and implementation policies within a specific set of rules, have been in use at a global level for over half a century. In Turkey, too, “in order to shape public policies on the basis of strategic objectives and to direct resource allocation within this framework, the first Medium-Term Programme was prepared in accordance with the Public Financial Management and Control Act No. 5018 of 10 December 2003, covering the period 2006–2008”.
The programme’s introduction states: “The Medium-Term Programme covering the period 2027–2029 adopts as its fundamental priorities the strengthening of macroeconomic and financial stability, the maintenance of fiscal discipline and the establishment of sustainable price stability in the medium term, in line with the objectives of the Twelfth Development Plan (2024–2028).”
Inevitably, upon reading the principle set out in the programme’s introduction – “it adopts the strengthening of macroeconomic and financial stability, the maintenance of fiscal discipline and the establishment of lasting price stability in the medium term as its key priorities” – one naturally wishes to access the details of the steps planned to achieve these objectives and the programmes to be implemented. Following the publication of the programme on the website of the Presidency of the Republic of Turkey’s Directorate of Strategy and Budget, one of the key issues we sought in our general review was information regarding the steps to be taken on ‘high interest rates’ – a matter which, as is apparent from the statements made, has significantly shaken the business community as well as affecting a large section of the public – specifically, ‘at what stage and what will happen’. However, detailed searches indicate that no programme regarding the reduction of high interest rates in Turkey over the coming period (2027–2029) has been put on the agenda.
Of course, interest rates are not entirely ignored; the word ‘interest’ appears a total of 53 times throughout the programme; however, 30 of these appear in the tables, which make up 23 of the OVP’s 88 pages; the remainder are found in the sections containing general observations under “I. DEVELOPMENTS IN THE GLOBAL AND TURKISH ECONOMIES”:
p/17 — In 2026, a year characterised by extreme volatility in international financial markets due to global uncertainty and geopolitical risks, the transition to the Turkish lira was encouraged through macroprudential policy measures—used by the CBRT as a supportive tool for the policy interest rate during the disinflation process—and credit growth was maintained at levels consistent with inflation
p/18 & 19 — During the programme period, credit interest rates moved in line with the CBRT’s policy measures, and the rise in funding costs was reflected in both commercial and retail interest rates.
p/20 — However, whilst the Index rose above the 15,000-point level in May on expectations that interest rates would fall, it subsequently experienced pullbacks due to ongoing geopolitical tensions and profit-taking; as a result, the Index followed a volatile trajectory above the 14,000-point level in August.
p/21 — Within this framework, the general government deficit as a percentage of GDP is expected to rise by 0.6 percentage points compared with the previous year to 2.7 per cent, whilst the general non-interest surplus is projected to stand at 0.8 per cent.
p/22 — The central government budget deficit as a percentage of GDP is projected to stand at 3.5 percent in 2027 and 2.8 percent by the end of the Programme period, whilst the non-interest surplus—expected to be 0.1 percent in 2027—is forecast to rise to 0.6 per cent by the end of the Programme period.
p/23 — Central government budget expenditure as a percentage of GDP is expected to stand at 24.5 percent in 2027, whilst central government budget expenditure excluding interest is projected to amount to 21.0 percent.
All of this indicates – partly due to the influence of rather enthusiastic promotional campaigns – that the new Medium-Term Programme (OVP), on which millions of people, from workers to the unemployed, and from employers to shopkeepers, have pinned their hopes, offers not even a hint that any serious steps will be taken to ‘eradicate high interest rates’, which form the root of the problems; in other words, it shows that those who prepared the OVP did not even deem it necessary to address the serious problems caused by high interest rates.
First and foremost, the fundamental rule in combating inflation is not to allow it to rise; in other words, whatever steps are necessary to ensure that production is not disrupted must be taken. Whilst increasing the supply of production, this will also pave the way for unemployment to expand as much as possible. The fundamental condition for increasing production is, moreover, to eliminate high interest rates, which drive up the costs of investment and production.