Abridged English translation of a column by Prof. Dr. Mehmet Karaçuka, originally published in Seferihisar Yeni Haber on 2 May 2025 as “Yüksek Faiz Politikasının Sınırları ve Yan Etkileri.” Figures and judgments refer to the original publication period.
Turkey entered May 2025 under intense economic pressure. The original column noted a policy interest rate of 46% and an effective rate of 49%, alongside weakening demand, production difficulties and persistent external imbalances. Its central argument was that monetary policy is a tool for fine-tuning an economy, not a substitute for structural reform.
High rates can restrain demand and inflation, but their effects differ across households. Lower-income families are particularly vulnerable to tighter credit and reduced purchasing power. By contrast, wealthier households with substantial deposits may earn considerable interest income, potentially worsening distributional inequalities.
Production also faces costs. Financing becomes expensive, capacity utilization weakens, and export-oriented firms may struggle when domestic input prices rise faster than the exchange rate. The article linked these pressures to concerns about manufacturing activity and the trade deficit.
The author also questioned whether very high rates could sustainably suppress foreign-currency demand without putting further pressure on central-bank reserves and fiscal resources.
The conclusion was not that monetary policy has no role. Rather, investment, export capacity, fairer taxation and structural changes are needed alongside stabilization measures. Relying too heavily on interest rates risks sacrificing economic activity and social welfare.
Original Turkish article: Yüksek Faiz Politikasının Sınırları ve Yan Etkileri — Seferihisar Yeni Haber, 2 May 2025.
