Turkey – The Lira breaks down without stopping, and the deficit records unprecedented

Every hour Turkey goes through an economic crisis that becomes ever more severe, with the monthly Turkish deficit reaching more than $10.7 billion, which is higher than the average estimate of $10.6 billion, the highest level ever according to data from 1984. From January to July, the deficit recorded at $62.2 billion, an increase of 143.7% over the previous year.

Economic crisis

Turkish policy makers tried to boost growth with ultra-loose monetary policy, hoping that cheap credit would find its way into manufacturing and export. However, high levels of loan growth and strong domestic demand also boosted Turkish imports, which led to increased demand for the dollar, according to Bloomberg, a US agency. The agency confirmed in its report that the external trade balance has begun to worsen further since the beginning of the Russian military operation in Ukraine, pushing energy prices to record levels. Russia, a major source of crude oil and natural gas, allowed Turkey to make some payments in rubles, but the details of the arrangement agreed upon by President Recep Tayyip Erdogan and Russian President Vladimir Putin in August remain secret.

Lira loss

In continuation of the deteriorating situation, the lira recorded a new decline during today’s dealings – Monday – approaching the lowest level ever, after the US Federal Reserve said: US interest rates may rise for some time. High interest rates in the United States and Europe reduce the attractiveness of emerging market assets such as Turkish bonds. Warnings of tightening Federal Reserve policy come at a time when President Erdogan has instructed the Turkish Central Bank to cut borrowing costs ahead of the elections scheduled for June despite rising inflation. The website continued that the lira fell by 0.1% to reach the value of the dollar at 18.19 lira in Istanbul on Monday morning, while the lowest level recorded in December was around 18.36 dollars.

Politics of Erdoğan

Analysts and economists say that the loss of the Turkish lira is primarily caused by the monetary policy of the Central Bank. The website Ahval confirmed that the rise of the inflation rate in Turkey to 79.6% is due to the moves of the Central Bank to reduce interest rates, which started in September last year. Interest rates have remained unchanged since December before the fall of this month.