In Turkey – Collapse of the Turkish lira and record inflation
The Turkish economy has so far suffered from the policies of President Recep Tayyip Erdogan, who undermined the independence of the central bank and insisted on lowering interest rates even as inflation accelerated, causing the lira to lose 44% of its value against the dollar last year alone. The collapse of the lira as a result of these policies continued and decreased by more than 20% in 2022 amid expectations of a further collapse in the Turkish economy during the third quarter of this year.
Permanent crisis
Turkish economists have confirmed that the Turkish lira appears to be in a state of permanent crisis due to President Recep Tayyip Erdogan’s policies, while Tim Asch, senior emerging market analyst at BlueBay Funds Management in London, said: “I think we can kind of say that in recent years, under Erdogan’s crazy interest rate policies, the lira is in a constant state of crisis”.
According to the Turkish website Ahval, the Turkish lira fell 0.1% to reach 17.22 lira in Monday’s trading. At the beginning of 2018, the exchange rate of the dollar was about 3.78 lira.
Robin Brooks, chief economist at the Institute for International Finance (IIF), said that Erdogan’s policies were the main reason many foreign investors withdrew and reduced their strategic allocations to the country, which Brooks described as very unfortunate.
Treason charges
According to the Turkish website, Erdogan insists that high interest rates are inflationary and contrary to his beliefs, and late last year the central bank cut interest rates to 14% from 19% on his orders; which led to selling of lira.
Inflation in Turkey accelerated to 73.5% in May, the highest level in developed and emerging markets, earlier this month, Erdogan said: The central bank will cut rates again, and raising rates is out of the question. The Turkish president accused economists of treason and ignorance. Only the traitors or the illiterates link interest rates to inflation.
Public anger
According to the Turkish website, Erdogan is suffering from a decline in popular support as he must call elections in June next year at the latest. Asch said: “The next government will face an uphill struggle to reverse policy mistakes and repair the damage they have caused”.
He continued: “Whoever wins the next election is likely to face the risk of having to deal with many economic structures in the Treasury, as a result of years of bad policy choices, which will need difficult and painful adjustments”.
