Domestic sales contracting amid Central Bank’s interest moves

With the decrease in domestic demand, particularly in the housing, houseware and automotive sectors, the pressure on the Central Bank for interest rate reduction will remain effective There has been an apparent stagnation in the markets and even a recession in sales, and recent economic statistics confirm this recession. According to these statistics, housing sales in July failed to reach expected levels; construction continues, but fails to attract new buyers. Even the sales of white goods are low compared to last year’s. The current economic situation forces the Central Bank to lower the interest rates.

The interest rates cannot be radically lowered in an economic environment where inflation is above target levels, however. The credit rating agencies indicate that when inflation is considered, the reduction of interest rates will lower Turkey’s credit mark.

At the beginning of this year, when foreign currency rates were rapidly rising, the interest rate was increased by 5.5 points and froze the markets. It was impossible to lower interest rates considerably due to rising foreign currency rates, as they were threatening; rising product costs also did not allow for the reduction of interest rates.  Last week, for example, an expected base reduction of 25 points did not materialize, and the weekly repo interest rate remained at 8.25 percent. This is due to the annual inflation rate, which is a point above the repo interest rate.

Constructors, estate owners and various retail shop owners are complaining about decreasing sales, and they were the ones warning then-Prime Minister Recep Tayyip Erdoğan that this would negatively affect voters’ actions. The outgoing prime minister menacingly...