Tuesday, November 23, 2021
Lira at record low
Politicians advise Turks to save on food
The reactions of the Turkish government to the fall in the lira are more curious than pragmatic: The central bank should not increase key interest rates, but lose its independence. The population is advised to eat two instead of two kilos of tomatoes a month.
According to President Recep Tayyip Erdogan, the Turkish lira has collapsed. It fell to record lows against the dollar and the euro. Against the dollar, the daily losses were at times ten percent. In return, the dollar rose above 12 lira for the first time. The euro rose to 14.06 lira. Meanwhile, politicians from Erdogan’s ruling party, the AKP, are sparking discussions with savings tips.
The renewed crash of the currency follows Erdogan’s demands for a “competitive” lira. An even weaker exchange rate should encourage investment and jobs. This should further fuel inflation as imported goods become more expensive. In this month alone, the lira has lost around a quarter of its value against the dollar and the euro.
AKP politician Zülfü Demirbag advised citizens to eat only half a month instead of two kilograms of meat. Instead of two kilos of tomatoes, two pieces might be enough. Eating vegetables out of season is not particularly healthy anyway. Earlier this month, Energy Minister Fatih Dönmez advised turning down the heaters to save money. The central bank had recently lowered the key interest rate after Erdogan’s pressure and thus sent the lira to lows.
Erdogan doesn’t believe in the rules of the market
Erdogan takes the view, contrary to the current doctrine, that high interest rates promote inflation. The pressure on the central bank is likely to continue. Devlet Bahceli, head of the ultra-nationalist party MHP, called for a discussion on the end of the independence of the central bank. The MHP is part of Erdogan’s government. “Independent institutions cannot stand above the will of the people,” said Bahceli. “Turkey should be free from the interest burden.”
He also demanded that Turkey oppose the International Monetary Fund and the “interest rate lobby”. The statements are likely to further weaken confidence in the lira and the Turkish economy. Erdogan wants to boost loans and investments through low interest rates and, against the backdrop of strong economic growth, may be re-elected as president in 2023.
According to the prevailing economists, on the other hand, the key interest rate is an important tool in the fight against high inflation: Central banks then usually increase the key interest rate, which the banks usually pass on to their customers. The intended consequence: the number of loans and thus the amount of money in circulation will decrease. Turkey is currently groaning under a high price increase – most recently inflation officially reached around 20 percent, making it one of the highest in the world.