Economist Karavelioğlu Warns: Interest Rate Hike Looms As Inflation Pressures Mount

Inflation surprise in Turkey

Karavelioğlu noted that April inflation in Turkey came in above market expectations, which were around 3.5%, but was announced at 4.18%, pushing annual inflation up to 32.37%. He said this development has effectively eliminated short-term expectations of interest rate cuts.

Warning for the TRNC: 38% scenario

He said a similar trend is likely in the TRNC, forecasting April inflation above 4%. In this case, he estimated that cost-of-living increases could reach 12% in the first four months of the year, with annual inflation approaching 38%.

“Interest rate pressure is increasing”

Karavelioğlu stated that these figures would create strong pressure on the Central Bank of the TRNC to raise interest rates. “A public finance system already sustained through high borrowing will come under even greater strain in the event of an interest rate hike,” he said.

Criticism of current fiscal approach

He criticised current fiscal practices, particularly the use of Development Bank resources to ease liquidity shortages, describing this approach as unsustainable. He argued that the priority of the authorities appears to be short-term stability rather than reducing debt.

Banking sector limits warning

Karavelioğlu also stressed that public borrowing is heavily reliant on the banking sector, warning that there is a limit to how much credit banks can extend to the state. “When this limit is pushed, the entire system becomes at risk,” he said.

“Fiscal discipline is essential”

He concluded that unless fiscal discipline is restored and concrete steps are taken in debt management, economic vulnerability will deepen further.