Turkish lira and US dollar
Resul Kaboglu | NurPhoto via Getty Images
Of Turkey lira It fell again overnight on rising inflation fears, with markets showing little confidence in President Recep Tayyip Erdogan’s promises that the country’s worst economic crisis would be. the water has passed.
Inflation in the country of 84 million people hit a 19-year high of 36.1% in December, the highest in all of Erdogan’s presidency. And economists warn that it could still rise, thanks to Erdogan’s unorthodox policy of cutting and refusing to raise interest rates, a standard tool used by monetary policymakers. to cool rising costs and strengthen the local currency.
The lira is trading at 13.36 to dollars at 11 a.m. Wednesday in Istanbul, was facing a rough start to the new year after losing about 45% of its value against the greenback since the start of 2021, the worst of the two. decade.
Erdogan last month revealed a new rescue plan to strengthen the currency without raising interest rates, which essentially entails protecting domestic depositors from market volatility by paying them the difference if the lira depreciates against hard currencies exceed bank interest rates. Critics say the plan is unsustainable, will further deplete Turkey’s already low foreign exchange reserves and essentially represent a massive hidden interest rate hike.
Christopher Payne, chief economist at Peninsula Real, based in Dubai: “We’ve seen time and again, especially in emerging markets – foreign investors sell money currency, domestic investors sell currency when they think interest rate policy has been a bit wrong. Real Estate Management, told CNBC on Tuesday. “The result of a currency crash is inflation. And there’s really no way out of that.”
The price of consumer goods soars
According to the Turkish Statistical Institute, food and beverage prices in Turkey increased 44 percent year-on-year and consumer prices rose 13.58% in December alone. Some economists predict inflation inflation could reach 50% by the end of the first quarter of 2022 if Turkey’s monetary policy – seen as lacking in independence and controlled by Erdogan – is not reversed. Goldman Sachs thinks it will rise above 40% for most of next year.
Meanwhile, Erdogan said he was “very upset” by the spike in inflation.
But the president continued to set aside concerns, saying on Tuesday from Ankara that “excessive” price increases were a “thorn” and a “pebble” in Turkey’s path, and that the government his will escape the “bubble” of inflation. Mr. Erdogan added that he was determined to put Turkey in the top 10 economies in the world. The country’s currency ranks worst among all emerging market currencies in 2021.
“Closing to the outside world and imposing capital controls is not something that Turkey would do as an export economy,” Payne said.
“There is no escaping the economic reality of this,” he said. “Whether President Erdogan will change his mind – or how he will change his mind and prove that he’s got it all right – is interesting for us to watch.”
