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‘Insane’ week for turbulent Turkish lira

Central bank woes and ‘unconventional’ economic policies mean finding a solution will be tough


Pete Carvill

The Turkish lira crashed this week, but somehow managed to rebound.

According to data from Morningstar, the currency went from being worth $0.088 per lira on Tuesday to $0.076 just six hours later. Since then, the value has climbed erratically upwards to—at time of writing—a rate of $0.083.

It also fell against the Euro in the same initial time period from €0.078 to €0.067. Currently, it stands at €0.074.

Turkey has many problems, and its economy has been shuddering for some time. According to CNBC, inflation is now nearly 20%. Its early-week crash, said the broadcaster is “[…] a level once unfathomable and well past what was just last week deemed the ‘psychological’ barrier of 11 [lira] to the dollar.”

Mounting problems

Unemployment is also high within the country. Of 85 million people, 11.5% were unemployed in September, according to the Turkish Statistical Institute. In comparison, Germany—with a similar size population of 83.24 million—has an unemployment rate of 5.9%, according to Statista, and the UK—with a population of 67.22 million—has unemployment of 4.5%.

Criticism has been rife towards president Ergogan for his monetary policies, which the wannabe-dictator and non-fan of German humourists has called his ‘economic war of independence’.

A note circulated by Bluebay Asset Management earlier this week said that the fall in the value of the Turkish lira was ‘insane’, a word that was also used to describe Erdogan’s economic policies.

As CNBC reported: “Turkey’s currency has been in a downward slide since early 2018, thanks to a combination of geopolitical tensions with the West, current account deficits, shrinking currency reserves, and mounting debt — but most importantly, a refusal to raise interest rates to cool inflation.”  

Revolving door

Reuters reported last week that in order to tackle the ongoing crisis, the Turkish central bank may look to cut its policy rate by 100 basis points to 15%. This was seemingly confirmed by The Daily Sabah, but since that publication is reputedly a de facto propaganda vehicle for the Erdogan government, we won’t link to it.

However, it has also been common knowledge that the central bank has gone through three chiefs in about two years, all fired by Erdogan for not following his missives. Given that Erdogan is seemingly opposed to interest rates being raised, expect the central bank to keep following his diktats.