One immutable rule in developing nations is the existence of politicians who palpably need fast economic activity to keep its voter base strong. In Turkey, this is absolutely proven to be right by the President Erdogan whose repeated pro-growth economic views are well known ─which include very dissenting opinions to generally accepted theories such as high interest rates cause high inflation. It is also not a secret that Turkish President has been piling pressure on the Central Bank and other financial institutions and pushing for lower interest rates.

Well, the chart above tells us an interesting story (might be even more interesting for the Presidential economy team). The colorful lines show the evolution of commercial lending and deposit rates implied by Turkish banks, and lines in grey show the policy rates (or average cost of funding) of Turkish Central Bank and the inflation rate where the lighter one shows the ‘real cost’ of money and the dark one is the inflation. Important point to gleam from the chart is that Turkish central bank had clearly maintained tight monetary policy as it has turned more and more accommodative following the global financial crisis.

Now here is thing: As Turkish central bank loosens its monetary policy, banks become more dependent on collecting deposits and deposit rates fall to extremely lows that they even provide negative returns in real terms as they remain below inflation rate. On the other hand, commercial lending rates, that could be considered as a critical source for the economy, do not track other the so-called policy rate as much as deposits do, and create a huge spread (between lending-borrowing) for banks to benefit (also need to note the QE impact here). Eventually, ‘interest rate lobby’ seems to have enjoyed the low rate environment much more than some think it would have.