Friday. 02.12.2022
TURKEY CRISIS

Turkish currency crisis spirals as lira plummets to fresh record low

Local media is full of images of long lines for cheap bread, quotas on certain goods in supermarkets and panic buying of essential items

17 December 2021, Turkey, Istanbul: People walk in front of a currency exchange shop in Istanbul. The Turkish central bank cut its benchmark interest rate to 14 per cent on Thursday, the fourth consecutive cut since September, leading the lira to fall to historic lows. Photo: Serkan Senturk/ZUMA Press Wire/dpa.
People walk in front of a currency exchange shop in Istanbul. Photo: Serkan Senturk/dpa.

The Turkish lira hit a record low of 17.17 against the dollar on Friday, losing a staggering 9% in a single day, following concerns over soaring inflation amid President Recep Tayyip Erdogan's push to cut key interest rates by 5% since September.

The lira separately saw an all-time low of 19.43 versus the euro on Friday, before recouping some losses as the central bank intervened to sell foreign exchange to the markets.

Analysts warn the bank is running out of arsenal to defend the ailing lira and call Erdogan's tactics reckless.

The currency crisis has delivered a major blow to the already struggling emerging economy and is sowing hardship for households across the country.

"The Erdogan administration has lost control of the macro-financial story," wrote Timothy Ash, a Turkey analyst at BlueBay Asset Management on Twitter.

The Turkish currency lost nearly 35% against dollar over the past month.

Overall, the lira lost 56% of its value against the dollar since the start of the year.

Lower rates will help spur economic growth, loans and create jobs, Erdogan argues in his unorthodox theory.

Economic turbulence

Most analysts, however, argue Turkey risks economic turbulence in the coming months, including high inflation and high unemployment, in case rates continue to drop.

Many Turks are struggling to make ends meet with official inflation at over 20%. Local media is full of images of long lines for cheap bread, quotas on certain goods in supermarkets and panic buying of essential items.

High inflation dents buying power almost on a daily basis even as the minimum wage for 2022 was raised by 50%.

"Yesterday 4,250 liras bought 275$, today it is 250$," former prime minister and opposition Future Party leader Ahmet Davuotlu tweeted, referring to the new minimum wage.

"Enough is enough! You can't run, announce early elections urgently!"

Turkish currency crisis spirals as lira plummets to fresh record low
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