Data releases on inflation and economic activity since the inception of the cycle of rate cutting and the favorable course of risk indicators have vindicated these preemptive monetary policy decisions and strengthened the impact of policy decisions on expectations, gradually bringing market interest rates down to historically low levels (Figure 13). The Central Bank assesses that the decline in market interest rates is also attributable to policy rate reductions, as well as maintaining flexibility in interest rate decisions in favor of a downward bias and the recovery in risk perceptions in the second quarter of 2009. The downward trend in market interest rates also reverberated on medium term real interest rates causing real market interest rates to go down compared to the first quarter and to follow a course below the levels of the pre-crisis period (Figure 14). Notwithstanding the fact that a decline in real interest rates in periods of stagnation is an anticipated change in healthy economies, I would like to underline that this has never been witnessed in the Turkish economy before. In this regard, the current level of real interest rates is considered to be a favorable development as it verifies that the Turkish economy is on the path of normalization.
First, the effects of the pandemic have significantly increased demand for certain categories of spending, especially for durable goods and housing. This increase in demand is occurring while supply in these sectors is being adversely affected by the pandemic. The case study for this dynamic is the automobile sector. The combination of high demand and supply shortages has led to historically low inventories. Customers are lining up to buy cars but are finding the dealer lots empty. It's a seller's market, and prices have soared. New car prices are up nearly 15 percent since the start of the pandemic, and used car prices have skyrocketed, rising more than 50 percent. Another prominent example is housing. With remote work policies in place, many people have relocated-buying larger homes in the South, in the suburbs, and in more affordable cities. This shift has caused demand for housing in some regions to far outstrip supply, while new housing construction has been held back by shortages in labor and materials. The imbalance between demand and supply has led to bidding wars. Homes have sailed off the market at record prices, with many purchased sight unseen. This combination of high demand and crimped supply has also resulted in rapid increases in rents, especially for apartments coming onto the market. The second major imbalance is in the labor market, where overall demand far exceeds existing supply.