Turkey: An imminent collapse of the lira and an unprecedented inflationary forecast
Société Générale revealed in a report on the difficult economic conditions in Turkey, confirming that the beleaguered Turkish lira is expected to be among the emerging market currencies that have been severely affected by the global slowdown and potential recession. Société Générale strategists, including Phoenix Kälin, said in the report: More problems await the lira and the currencies of other developing economies in the short term.
Collapse of the lira
The Turkish website “Ahval” confirmed that the French bank expects a drop in the value of the Turkish lira to reach 22 lira by the end of this year, which will lead to an increase in losses this year to 39.5%. The lira was traded on a decline of 0.3% to reach the value of the dollar at 17.51 lira yesterday, Tuesday, which raised the decrease in 2022 to 24%, and the lira lost 44% of its value last year after President Recep Tayyip Erdogan ordered the central bank to reduce interest rates despite strong inflationary pressures. Consumer price inflation in Turkey reached 78.6% in June, the highest level since 1998. International credit agencies reduced the rate to deal with the country’s undesirable inflation.
Last month, Societe Generale Bank said: Inflation in Turkey will peak at 80% or more in the coming months, he said. Interest rates will remain at 14% during the second quarter of next year, and selling pressure on the lira is likely to increase due to high inflation and energy prices. The lira fell to a record low of $18.36 in December during the sell-off of the panic caused by public concern about economic policy. Trading recovered strongly 10.15 to the US currency after Erdogan announced a plan to link bank deposits in Turkish lira to the value of the dollar.
Credit rating
According to the Turkish website, Fitch Ratings Agency lowered Turkey’s sovereign debt rating to “B”, five levels below investment grade, from “B +” on July 8, citing widespread concerns about the economy and accelerating inflation, Fitch said: “Turkey’s policies are becoming increasingly intrusive and unpredictable,” Fitch said, referring to the latest of a series of measures, introduced last month, banning loans to companies believed to be flowing with foreign exchange funds. “The government’s focus on maintaining high growth is fueling demand for foreign currencies, the pressures of the depreciation of the lira, declining international reserves and spiraling inflation, and discouraging capital flows to finance rising current-account deficits”.
