Turkey stimulates housing market with below-inflation mortgage rates

State-run banks will cut mortgage rates from a monthly 0.99 percent on Jan. 1, Treasury and Finance Minister Berat Albayrak said on Friday, according to local media including Dünya newspaper.

Albayrak said the move is in line with the government’s goal to slow annual consumer price inflation (CPI) to 8.5 percent in 2020. CPI accelerated to 10.6 percent in November from 8.6 percent the previous month and is expected to nudge higher in December.

Turkey’s government has used lenders including Ziraat Bank and Halkbank, controlled by the sovereign wealth fund, to reduce the cost of lending to consumers and businesses since a currency crisis in the summer of 2018 pummelled economic growth and led to a slump in consumer and business confidence. The wealth fund is chaired by President Recep Tayyip Erdoğan.

Albayrak said the Turkish authorities will succeed in reducing inflation to below the 2020 goal.

Interest rates on loans in Turkey have also fallen sharply as the central bank slashed the cost of lending to banks to 12 percent in December from 24 percent in July, when Erdoğan sacked and replaced the bank’s governor for failing to support government policies.

Turkey’s housing market is among the worst affected by the economic downturn, with builders struggling with a growing stockpile of new apartments and houses in Istanbul and other major cities. The firms, major beneficiaries of a surge in consumer-fueled economic growth in recent years, have topped an increase in bankruptcies among Turkish businesses during 2019.

Erdoğan, who maintains that lower interest rates reduce inflation, says he expects the central bank to cut rates to single figures in 2020. Monetary policymakers next meet to decide on the level of interest rates on Jan. 16.

The Turkish Statistical Institute will publish December inflation figures on Jan. 3.