Turkey’s negative real interest rates could hurt the central bank’s credibility and lower investor trust, International credit rating giant Moody’s warned in a credit outlook report Feb. 27.
Negative real interest rates, the practice of having an inflation rate higher than the interest rates on loans, would further decrease interest on domestic deposits, the report noted.
Lower interest on domestic deposits could cause an increase in dollarization, the practice of substituting dollars for domestic currency, Moody’s added.
Negative real interest rates make Turkey more hazardous rather than risk-averse for investors and don’t justify investing in Turkey anymore considering all other factors that create unpredictability in investment security, Moody’s warned.
A dip in investor trust could worsen the decrease in depositors’ trust that was a consequence of the dollar regulation of May 2019, the report added.