The central bank of Turkey raised its OVERNIGHT LENDING RATE TO 12.00% – this is up from 7.75%. This is indicative of the other side of the coin with high rates. A central bank can raise rates, as we traditionally see during a boom or in China these days, in hopes of stopping the speculation. Markets and economies never peak at the same level of interest rates because the real answer is the rate minus expectations. In other words, if you think whatever the investment is will double by next year, you will pay even 50% interest rates. It is the difference that counts and that is why there is no magic bullet associated with a specific level of interest rates.
What we are witnessing here in Turkey is the flip side. When confidence collapses in a country or its government, rates rise based upon the fears of risk. This is what is taking place in Turkey. It is not economic boom – but the fear of collapse. Rates will rise exponentially. If confidence collapses entirely, then you get the hyperinflation when the government collapses and there is zero confidence in buying any debt from some new type of government..
