The Turkish lira sunk to a new historic low against the US dollar on Tuesday, with many feeling the pinch from the exacting toll of a sinking currency, rising inflation and looming economic uncertainty.
The worst performing emerging market currency, Turkey’s lira sunk almost 4% to drop to 10.36 against the US dollar at its low on Tuesday.
Market stall owner Kadriye Dogru, 59, a widowed mother of two selling garments at the Ortakcilar market in Istanbul told the Associated Press, “I had never experienced such a deplorable life. I go to sleep, I wake up and the prices have gone up. I bought a five liter can of (cooking) oil, it was 40 lira. I went back, it was 80 lira.”
Compared to last year, inflation soared almost 20% in October, though the independent Inflation Research Group, comprised of academics and former government officials, said it was more likely closer to 50%.
She added, “We don’t deserve this as a nation.”
Fears of political interference
Turkey’s economic travails are not just inflicted by the exacting toll of the pandemic but are also attributable to political interventions and the unorthodox economic beliefs of the country’s most powerful man, President Recep Tayyip Erdogan.
Erdogan believes in lowering the cost of borrowing money to boost growth. A cheap currency would theoretically stimulate growth, however economists disagree and the consequences of this approach are playing out in Turkey at present time.
Since 2019, Erdogan has appointed four central bank governors and fired bankers who resisted his entreaties to reduce interest rates. Since September, Turkey’s central bank has raised interest rates by 3%.
Inflation is causing price increases which is resulting in higher costs for imports, fuel and basic household goods, all of which are suddenly much more expensive. Turkey’s industries also rely on a great array of imported raw materials.
Turkey’s central bank is expected to announce its latest moves on Thursday.
Foreign investors have been heading for the hills, dumping seemingly suddenly worthless assets while Turkish people have been converting their life savings into hard currencies such as the US dollar and Euro as well as gold.
Erdogan believes if borrowing costs are reduced, the economy will take off despite eye-popping inflation
Erdogan: ‘We are continuing with plenitude and abundance’
Erdogan’s early years in office were marked by a strong economic performance. Now however, he continues to insist that the economy is robust and that Turkey will come on top after the pandemic winds down.
“Shelves in Europe are empty, they are empty in the United States. Praise to God, we are continuing with plentitude and abundance,” he said.
Erdogan’s administration has gone after supermarket chains in response to rising food prices. He ordered agricultural cooperatives to open 1,000 new shops around Turkey to reduce food prices.
He also recently accused a group of students of “terrorism” for sleeping in parks to protest the high cost of housing.
Ozlem Derici Sengul, an economist and founding partner at Spinn Consulting in Istanbul told AP, “There has been a massive selloff in financial markets just due to this intervention to the central bank’s independence.” She emphasized, “the dominant factor is the central bank’s policy.”
Emerging market economist Timothy Ash said, “It’s an interesting call that the Erdogan team think growth and jobs rather than beating down on inflation will win them the next election,” currently scheduled for 2023.