Friday 17th December 2021
“Trust shattered”
Lira slumped to a record low
The Turkish lira continues to decline. In the morning, the dollar and euro again hit historic lows after the country’s central bank continued to cut interest rates despite high inflation.
The Turkish lira continues to decline: the currency has dropped to a record low, while the dollar has risen by up to 3.3 percent to 16.1863 lira. The Turkish central bank lowered the key rate again on Thursday despite high inflation and the currency crisis.
The monetary authorities have already loosened their monetary policy several times since September, even though the inflation rate is currently more than 21 percent. “That shook confidence in the central bank,” says Thomas Altmann from QC Partners. “And confidence in the Turkish currency is now correspondingly low.” The lira has already lost around half of its value against the dollar since the beginning of the year.
In the coming year, according to forecasts by economists, the inflation should even reach 30 percent. This is mainly due to the decline of the national currency, which has lost half of its value against the dollar this year. This makes imports – of oil and medicines, for example – more expensive because they usually have to be paid for in foreign currencies such as dollars or euros. “Our currency is the lira, and we will not allow it to be swallowed,” promises President Recep Tayyip Erdogan.
Central bank has lost reputation with investors
The experts also see the reason for the currency crisis and high inflation in the unorthodox monetary policy of the central bank. This has cut its key interest rate from 19 to 14 percent since September, although economists consider a significant increase to be the correct answer.
Erdogan wants to use it to boost exports, credit and growth before the election in 2023. “We are determined to put an end to the uncertainty caused by the fluctuations in exchange rates and the exorbitant price increases as soon as possible,” said Erdogan.
The central bank has rapidly lost its reputation among investors. Erdogan contributed to this by repeatedly calling for interest rate cuts and killing three central bank governors within two and a half years, which calls into question the independence of the monetary authorities.