The Role Of Bank Interest Rate In The Competıtıve Emergıng Markets To Provıde Fınancıal and Economıc Stabılıty

Abstract

Financial and economic stability are two main significant concepts of the countries. Many different actions are taken in order to reach this objective. In this process, interest rate plays a key role because it mainly affects the cost of investments and consumption decisions of the parties. Therefore, the determinants of interest rate should be identified to have more effective financial market. This study aims to determine the influencing factors of bank interest rate in Turkey. Within this framework, seven different independent variables are selected based on literature review. Moreover, quarterly data of these variables for the periods between 2001:01 and 2018:02 is taken into the consideration. Furthermore, multivariate adoptive regression splines (MARS) model is used in the analysis process. The findings show that inflation, foreign debt, budget deficit, current account deficit and high oil price are the main determinants of high interest rate in Turkey. Therefore, it is obvious that Turkish government should take some actions to minimize these macroeconomic problems. In this context, inflation targeting plan should be implemented more effectively with the coordination of the government and central bank. Additionally, budget discipline should be maintained in order to prevent budget deficit. Furthermore, the government should take some measures to reduce the demand for imported goods, so current account deficit can be decreased. With the help of these actions, it can be more possible to decrease interest rate in Turkey. Lower interest rate has an increasing effect on the investment which contributes sustainable financial and economic growth.