The Turkish currency crisis deepened this week as the Turkish Lira closed the week at a new record low against the US Dollar.
In the Forex markets, the Turkish Lira plummeted 8% on Friday after the Turkish central bank cut its interest rate by 100 basis points to 14%. The expected cut is a part of the unorthodox economic programme set out by President Tayyip Erdogan, despite inflation rocketing above 21%.
The move to slash interest rates in the face of soaring inflation was met with heavy criticism by Turkish business leaders. Rifat Hisarciklioglu, the head of Turkey’s Union of Chambers and Commodity Exchanges said he had been “astonished” to see the central bank cut rates, then the next day, sell foreign reserves to support the lira.
“Turmoil in markets and the level of exchange rates is worrying many companies and having a negative impact on them,” he added.
Inflation Expected to Rise Further
Erdoğan has set out his approach as an “economic war of independence” which will drive up exports, foreign investment, and job creation. However, the reality is many citizens are struggling to adapt and survive in the current economic climate.
The Turkish Lira has in fact become even less attractive to investors and savers. Turkish people are watching their savings and earnings dissolve at an alarming rate, yet Erdogan and the Central Bank are persisting with this rate cut policy.
Erdogan’s move to push through 500 basis points of monetary easing since September, including this Thursday’s big cut, has seen inflation hit 21% and it is expected to pass 30% next year. This is despite Erdoğan speaking last week about how he had lowered Turkey’s inflation to 4% before and promised to achieve that 2011 level again soon.
However, as Turkey’s currency crisis deepens, the signs are not looking good for the Lira or inflation.
