#TURKISH EXCHANGE RATES SERIES#

Among the difficulties is that Turkey has to import most of its energy.Īnother issue is that a significant proportion of Turkey’s debts are in foreign currencies – mainly US dollars and euros.

About 70% of Turkey’s imports are made up of raw materials and goods used in manufacturing, so that’s where much of the effects will be felt. Given that inflation has only risen by about one percentage point since the summer, that suggests it has a long way to go yet. The fact that so much of the economy runs on US dollars does not help.Įxisting estimates suggest that a 10% depreciation in the lira against the US dollar results in around a two percentage point rise in inflation.

For one thing, the fall in the lira will soon show up in a rise in inflation, which is already hovering around 20% even by official accounts. This is a massive depreciation for any economy, and even worse for Turkey for various reasons. The lira has now lost nearly 40% of its value since the beginning of the year. The most recent appointment was Şahap Kavcıoğlu in March, and interest rates have not risen since then. There have been four central bank governors in less than three years, with a clear pattern of dismissals closely following interest rate hikes.

#TURKISH EXCHANGE RATES SERIES#

Second, the independence of the country’s central bank, granted as part of a series of economic reforms in the early 2000s before Erdoğan’s AKP came to power, is now also gone. First, the move to the current executive presidential regime in 2018 officially crowned the president as the dominant authority in every sphere of policy. There have been two important changes in governance in recent years with important consequences.

Unlike the 2018 currency crisis, which followed a diplomatic crisis between Turkey and US, the latest debacle is very much homemade and self-inflicted. President Erdoğan believes that raising interest rates would raise inflation rather than reduce it, and has maintained this view throughout the near 20 years that he has been prime minister (2003-14) and president (2014 to present). It would have been of some academic interest to analyse the reasoning behind such a move, but there has been little forthcoming from the authorities – except to say that it would “boost exports, investment and jobs”. So why has Turkey had such an “irrational” policy stance on interest rates while everyone else is doing the opposite? Erdoğanonomics It is now trading at around TL12.10, having recovered a little but then weakened again as investors move money out of weaker currencies in response to new fears about COVID.

The Turkish lira, which was trading at TL8.28 = US$1.00 in early September, fell to TL13.40 a few days ago, its lowest level on record at the end of an eleven-day losing streak. Since September, Turkey has cut interest rates by four percentage points from 19% to 15%, wreaking havoc in the financial markets in the process. It’s too early to say whether the new coronavirus variant B.1.1.529, first identified in Botswana, will take rate-rises off the agenda, but certainly they have not been part of Turkey’s plans. Every central bank has responded by either raising interest rates or committing to raising them in the immediate future. Supply chain problems and labour shortages arising from the pandemic, combined with sharply rising food and energy prices, have pushed prices up by as much as 6.2% in the US, 4.2% in the UK, 10.7% in Brazil and 4.5% in India. Central banks around the globe are currently staring at inflation rates unseen in more than 20 years.

Turkish exchange rates