Turkey’s inflation climbed to its highest level since 2002
Turkey’s lira, plagued by low interest rate policy, is falling for the seventh day in a row after the worsening crisis in Ukraine and the Turkish government’s failure to take any action to stop the collapse of the local currency, heralding a record rise in inflation and exiting prices from the control of censors.
Standard regression
According to Turkish media, the depreciation of the lira due to fears that the war in neighboring Ukraine would push inflation to its highest level in two decades would widen the current account deficit.
The lira fell by 1.1%, leading to a loss of more than 5% since Russia’s offensive in Ukraine.
Turkish authorities sought to contain the lira loss – which totaled 44% in 2012 – through costly interventions in the foreign exchange market and a scheme to link some bank deposits to the dollar, introduced in December as the currency reached record highs.
High inflation
Against the backdrop of a weak lira, inflation in Turkey jumped to 54.4% in February, the highest level since early 2002.
Price increases in the country accelerated after the central bank cut interest rates to 14% from 19% late last year and the price of global goods such as oil rose. Turkey imports almost all the energy it consumes.
The Turkey’s lira has fallen by about 10% against the dollar since the beginning of the year.
Largest deficit
The website said that the increase in imports means that Turkey will probably announce its largest current account deficit since December 2017 on Friday.
Reuters reported this week, citing a survey of economists, that the total deficit is expected to be $7.25 billion.
Turkey’s trade balance, the largest component of the current account, recorded a deficit of $10.3 billion in January, more than tripling from 12 months earlier, when the energy import bill jumped.
Economists and strategists, including Tim Ashe of London’s Bluebay Asset Management, warn that Turkey’s policy of keeping interest rates low amid high inflation and growing current account deficits is unsustainable.
President Recep Tayyip Erdogan insists that high interest rates are inflationary and has ruled out raising interest rates as a political tool.
Three central bankers have been sacked in less than three years.
In a televised speech to members of the ruling Justice and Development Party (AKP) in parliament in Ankara on Wednesday, Erdogan said that Turkey has proved its resilience in the face of shocks and will soon overcome the current economic difficulties.
