Black Tuesday for the Turkish Lira. The price of the Turkish currency hit historic lows again with falls of up to 13% in its value against the euro and the dollar – the biggest intraday bump in two decades – a victim of lack of confidence in the economic management of President Recep Tayip Erdogan. The lira has been depreciating for three weeks, every day at a faster rate, and since last February, it has accumulated a decline of 43%.
The main reason for the fall of the Turkish currency is in the pressure from the executive for the Central Bank to lower interest rates in order to revive the economy, despite the high inflation affecting the country. In March, then-Governor Naci Agbal, a proponent of a restrictive credit policy to maintain the value of the lira, was abruptly sacked by Erdogan and an economist and pro-government daily columnist, Sahap Kavcioglu , was placed in its place. , the fourth governor to hold office in two years. Members of the Central Bank’s monetary policy committee opposed to cutting the price of silver below inflation have also been fired in recent months.
In September, the issuing institute began the policy of lowering rates (then at 19%) with gradual reductions until the one decreed last week of 100 basis points, which left the reference rate at 15%. . Prices in October, however, rose by 19.89% compared to the same month in 2020, according to figures from the official statistics institute (TÜIK), whose reliability is questioned due to the continuous purges it has suffered (for example, this year has declined to publish mortality statistics to avoid revealing the full extent of Covid-19 deaths). Unsurprisingly, the independent group ENAG, made up of academics and economists, maintains that inflation in October reached 46%. In the midst of a storm, BBVA launched a takeover bid on the remaining 50.15% of its Turkish subsidiary, severely sanctioned by investors. So far this month, the entity has lost 16% of its stock market value.
But Tuesday’s sudden collapse came in the wake of Erdogan’s speech after Monday’s Council of Ministers, in which he once again defended against all odds the policy of lower interest rates. interest rate and indicted all those who defend an interest rate policy to fight against inflation (the Turkish president claims that high interest rates increase inflation and low interest rates reduce it, contrary to what postulate most economists). On the one hand, the Turkish president assured that the “competitiveness” of the currency is good news for exports and investments, but, at the same time, he attributed his downfall to the “games” of foreign forces. “We came out of all the battles honorably by adopting a firm position. With God’s help and the support of our nation, we will emerge victorious from this war of economic independence,” Erdogan said, referring to the war waged a century ago by Turkish nationalists against the invading powers that allowed the Republic of Turkey to emerge from the ashes of a defeated Ottoman Empire.
What seems clear is that, this time, neither the Central Bank nor the public banks have the government’s directive to try to stop the fall of the lira by selling foreign currencies as has happened. last year, which led the issuing institution to burn almost all of its foreign exchange reserve assets. Some local analysts believe it is a conscious policy aimed at depressing the currency and boosting exports, although Finance Minister Lütfi Elvan said earlier this month that the government was not pursuing not this goal, which left many wondering if there was a plan behind the current economic policy or if it was the result of an improvisation.
In any case, exports have increased by a third and forecasts predict a 10% increase in GDP after a year 2020 where the Turkish economy did not contract. The current account deficit, one of the country’s traditional problems, is at historically low levels.
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But at street level, the macroeconomic figures are no consolation and the mood is crisis. The collapse of the lira has made it more expensive to import essential inputs for the operation of industry and agriculture, making the prospect of a moderation in price increases less likely. The government’s response was to send police and ministry technicians to investigate supermarket chains and street vegetable markets and fine them if they raise prices too much. Photographs have appeared on social media of some supermarkets in which the purchase of non-perishable goods is restricted “to avoid product hoarding”, although most chains have not taken such action. Some companies dedicated to the sale of fertilizers and medicines – mostly imported – have temporarily halted sales due to fluctuating exchange rates, according to local press.