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The fall of the Turkish lira is endless due to the country’s economic troubles, which appear to be contributing to Erdogan’s highly aggressive domestic and foreign policy.
The Turkish lira broke the 7,438 barrier against the dollar on Thursday, the lowest level in history. Furthermore, the country’s national currency has sunk against the euro with the relative exchange rate at 8.79. This time, the fall of the neighbor’s hryvnia came after the release of new inflation data, showing that price increases remain high. Inflation in Turkey in August stood at 11.76%, which is a marginal increase compared to July, according to official figures released by Ankara.
The Turkish lira has lost about 20% of its value against the dollar this year, and investors are waiting to see what policy the country’s central bank, which is fully controlled by Erdogan, will follow. In August alone, the pound’s losses against the dollar reached 5%. The central bank has indirectly tried to raise interest rates through money supply interventions because the Turkish president does not want to raise interest rates normally for mainly political reasons. Thus, the average cost of providing cash in the market increased by the central bank to 10.16%, from 7.34% in July. However, the official interest rates on the loans remain at 8.25%.
Erdogan’s victim
The Turkish lira has recently shown its worst performance of all emerging economies. It has been a victim of the economic policies of Erdogan, who has asked for and received large reductions in loan rates, has increased public spending and has sought to increase loans to companies and households.
Although these policies have helped contain the pandemic economy due to the pandemic, Turkey is now facing the reality of stronger inflation and mounting pressure for tighter monetary policy, according to Bloomberg. The key interest rate for loans in Turkey is currently shaping up from 8.25% in the previous months, with the result that real borrowing costs are negative when taking into account higher inflation.
The situation is becoming more pressing for Ankara, which has spent huge sums of its foreign exchange reserves to support the pound. This effort appears to have reached a crossroads where foreign investors are staying away from Turkish markets, making it difficult for the country to find sources of financing.
Rally for the euro
The fall of the Turkish pound against the dollar becomes even more significant considering that the dollar is weakening in international markets. It is indicative that the euro has strengthened 12% in just five months, reaching $ 1.18, having broken the $ 1.20 barrier for the first time in two years.
This is a fact that is causing headaches for the president of the European Central Bank, Christine Lagarde, as the strengthening of the euro keeps inflation in the eurozone lower than the ECB would like. In the past, ECB officials have raised concerns about the strength of the euro, and this is a problem that Erdogan surely would like to have now for his own currency, rather than seeing the daily hit of the pound as the markets unfold. things in Turkey.
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