The Turkish currency, the lira, reached a new record low on Monday, falling below 28 lira against the US dollar. This marks a significant decline of more than 50% against the greenback this year, highlighting the country’s ongoing economic challenges.
In an effort to combat high inflation, the Turkish central bank had previously raised the key interest rate by 500 basis points to 30% in September. This was the fourth consecutive rate hike, signaling a shift in policy as the government tries to tackle the rising inflation. However, despite these efforts, the currency continues to plummet.
One factor contributing to the lira’s decline is the decision by the regulator in August to not inject more foreign-exchange reserves into the country’s economy. This move, coupled with a relaxation of regulatory requirements in the banking industry, had an adverse effect on the currency’s value.
Over the past 18 months leading up to August, Turkey had spent approximately $200 billion to support its national currency. This draining of reserves, combined with the government’s decision to keep interest rates artificially low, has created a challenging economic environment for the country.
The annual inflation rate in Turkey has been rising steadily, reaching 61.5% in September 2023, marking the third consecutive month of increase. This surge has been attributed to increased tax rates and the devaluation of the lira. The inflation rate is expected to continue rising and could potentially reach 60% by the end of the year.
It is important to note that the government’s support for low interest rates despite high inflation has been a contributing factor to the currency crisis in Turkey. This policy has led to a currency crisis in late 2021 and pushed inflation above 85% last year. The current situation indicates the urgent need for the government to reassess its policies and take measures to stabilize the economy.
The decline of the Turkish lira not only affects the domestic economy but also has implications for international trade and foreign investments in the country. It creates uncertainties and challenges for businesses and investors, potentially leading to decreased confidence in the Turkish market.
In conclusion, the Turkish currency’s continuous decline and record inflation levels reflect the challenging economic situation in the country. Despite rate hikes by the central bank, the lira’s value against the US dollar continues to drop. To address these issues, the Turkish government must implement effective policies to stabilize the economy and restore investors’ confidence.