The cost of high interest rates

In the economy, the heaviest cost that breaks the wings of the real sector, reduces investment appetite, and burdens producers is undoubtedly high interest rates.

HIGH INTEREST RATES DISTORT THE PRODUCTION STRUCTURE

When producers are forced to postpone investments due to the high cost of capital needed to expand production capacity, conduct R&D, achieve high-tech production, and increase exports, this leads to a decline in production and a loss of momentum in economic growth.

This, in turn, prevents the country from achieving higher per capita income.

HIGH INTEREST RATES ARE A COST

Although high interest rates reduce spending and attract capital inflows to the country, in the long run they negatively affect production and, by creating a financing burden, actually fuel inflation through rising production costs.

As is well known, businesses that borrow at high interest rates are forced to reflect this cost onto the prices of the products they produce.

THE SOCIAL COST OF HIGH INTEREST RATES IS ALSO HIGH

On the other hand, the inflation triggered by cost increases driven by high interest rates brings with it a social cost, as the purchasing power of broad segments of the population declines.

Furthermore, high interest rates also worsen the income distribution between upper and lower income groups.

HIGH INTEREST RATES AFFECT THE QUALITY OF PRODUCTION

High interest rates cause capital to flow into areas offering high returns rather than into investments that generate value added, enable technological transformation, and increase productivity.

This means that the country's structural problems remain unresolved, particularly the persistence of the current account deficit and the continuation of a low-tech production structure.

HIGH INTEREST RATES WORSEN PUBLIC FINANCES

While public resources should be channeled into structural investments such as education, health, and technological infrastructure, high borrowing costs instead divert them toward interest payments, thereby deteriorating the budget.

For this reason, Türkiye must resolutely implement structural reforms that free production from interest rate pressure, pave the way for value-added investments, and channel financial resources directly toward production and exports.