[ad_1]
The Turkish lira sinks. It is obvious how the decline in value could be stopped. But President Erdogan sticks to his confused ideas and prefers to remove the head of the central bank.
Turkish President Erdogan does not believe in rate hikes, regardless of the increasingly depreciating national currency.
The Turkish population sees the purchasing power of their money quickly melt away. The external value of the lira goes from a record low to the next. Inflation, which is just under 12%, also contributes to the fact that money can buy less and less. Suffering Turks do what they usually do in such situations: they exchange the lira for harder coins or gold. Foreign investors are also moving away from the emerging market. That is worrisome. Because Turkey is struggling with a notorious current account deficit. To finance this deficit, the country needs foreign capital. But in times of collapse in tourism revenue, it is more uncertain than ever where the capital will come from.
What should be done? The answer is obvious. The central bank would have to make money more expensive, that is, increase the key interest rate, which is 10.25%. This became evident as early as 2018, when a similar currency crisis only eased after the key interest rate, after too long a hesitation, was finally raised to 24%. At that time, however, the central bank enjoyed even more independence than today. Since President Erdogan removed the head of the central bank in July 2019, it has become clear that the autocratic leader also has the last word on monetary policy. But Erdogan doesn’t want to know anything about higher interest rates. Rather, he is convinced that a weak currency and high inflation must be combated with low interest rates. He quickly fired the head of the central bank again on Friday night.
This is, to say the least, a very unconventional view. But Erdogan does not tolerate any contradictions. And no one around him has the courage to teach the president the basics of monetary policy. It is much preferred that the currency crisis be minimized, for example, as a marginal note that only affects buyers of foreign luxury cars or expensive vacation trips. As long as this denial of reality continues, the lyre will continue to lose value. Erdogan may be used to being able to rule Turkey with authority. But the biggest economic problem, namely the lack of confidence in monetary policy, cannot be forced. Trust must be developed, with measures that have nothing in common with the crude theses of the president.
