Turkish currency hits record lows while inflation has skyrocketed – archyde

The wrong kind of turkey is puffing up this Thanksgiving as economists around the world sit stunned by Wednesday’s record high.

Economists in Turkey have been put on high alert after the country’s currency slumped a staggering 15 percent on its second worst day on record.

The worst performer of any country in 2021, the lira has lost 45 percent of its value this year. Inflation hit the Middle Eastern nation hardest in November, posting the lira near 26 percent since early last week.

The Turkish currency has been in decline since early 2018 and the cause is difficult to determine. Many believe the decline was caused by a combination of geopolitical tensions with the West and radically rising debt caused by the inevitable economic strain the coronavirus pandemic has placed on nations.

Turkish President Recep Tayyip Erdogan’s continued refusal to raise interest rates in order to reduce inflation has also been heavily criticized and has become an increasingly hot topic for critics of the government in recent months since the economic spiral.

Mr Erdogan recently defended the recent drastic rate cuts, telling his citizens that the nation was waging an “economic war of independence.” In his view, interest rates are “the enemy” and will make inflation worse.

“Insane where the lira is, but it is a reflection of the insane monetary policy framework Turkey is currently operating in,” Bluebay Asset Management market strategist Tim Ash said via CNBC.

“We are witnessing a perverse economic experiment of what happens when a central bank has practically no monetary policy. Erdogan has taken the CBRT (Central Bank of Turkey) the opportunity to raise the key interest rate. “

On November 24, the lira was quoted at 13.44 against the US dollar and will lose an incredible 30 percent against the US dollar in 2021 alone. Looking ahead, the drop in the lira made headlines as early as November 2019 when it was trading at around 5.6 against the USD, which meant a massive drop from mid-2017 to 3.5 against the dollar.

Inflation in Turkey is currently around 20 percent, which is causing staple food prices to skyrocket as salaries devalue. The slowly deteriorating conditions for the middle and lower classes of the 85 million inhabitants have caused some concern for the locals.

“The prices are rising too quickly. I don’t want to buy certain products because they are too expensive, ”said Kaan Acar, a hotel manager in the resort of Kalkan in southern Turkey, about the online publication Rappler.

“The blame lies with President Erdogan, the AKP government and those who turned a blind eye for years and supported them.”

Former deputy governor of the bank, Semih Tumen, who was sacked by Mr Erdogan last month in the final round of economic reform, called for regulation to be reintroduced to protect the value of the currency.

“This irrational experiment, which has no prospect of success, must be abandoned immediately and we must return to a quality policy that protects the value of the Turkish lira and the prosperity of the Turkish people,” he said on Twitter.

According to several experts, the alarming slump has been in sight for years. An article published by German wave Predicting the lira’s continued decline in August 2020, the warning of decades of lending would soon bite again.

“However, the president’s ‘good intentions’ in lifting the economic boat have sparked a credit frenzy, with credit growth rising 40 percent in the past three months, peaking at 50 percent in May 2020, the fastest rate growth since 2008. ”wrote the publication.

“The credit explosion, including cheaper credit to households and businesses, fueled domestic inflation, which was 11.76 percent in July year over year. At the same time, the demand for foreign currencies increased with increasing imports, which weakened the Turkish currency even further. “

Brown Brothers global market strategist Harriman Ilan Solot said staunch Mr. Erdogan will likely wait until the “break point” before making a drastic change.

“At the moment, the locals seem content to keep their dollars in the local system. If they start moving money elsewhere, to Germany, to Austria, that’s a different story, ”he said. “Then we will have a conversation about a real currency crisis.”



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