Exchange Rate To Turkish Lira - All About Forex

Exchange Rate To Turkish Lira

Exchange Rate To Turkish Lira – President Erdogan wants low interest rates for growth and jobs, while ordinary Turkish people are suffering from deflation due to the depreciation of the lira.

The country’s central bank cut interest rates from 16 percent to 15 percent in November, for the third month in a row, after President Recep Tayyip Erdogan pushed for interest rate cuts despite deflation and rising inflation.

Exchange Rate To Turkish Lira

Exchange Rate To Turkish Lira

Instead of issuing a statement that would galvanize the market to support the local currency, Erdogan announced the day before the cut that he will not stop opposing higher interest rates as long as he is in office.

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The remarks reiterated his view that higher interest rates would lead to higher inflation, rather than Another way, according to the main economic theory.

As a devout Muslim, Erdogan also tried to justify his stance on interest rates by quoting verses from the Koran.

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Markets believe that Turkey’s central bank has lost its independence and credibility by bowing to Erdogan’s pressure to lower interest rates.

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After firing several governors, Erdogan earlier this year appointed Sahap Kavcioglu as the new head of the bank. In the past, Kavcioglu wrote a column for the government daily Yeni Safak where he supported Erdogan’s anti-interest rate theories, such as the scientifically questionable claim that low interest rates lead to low inflation.

While the annual inflation rate, in line with world trends, reached almost 20 percent in Turkey, the central bank reduced it by 2 percent last month from 18 percent to 16 percent, effectively providing negative real interest rates.

The move, unsurprisingly, sent the Turkish lira into a downward spiral as locals switched from the local currency to foreign currencies, including the US dollar and the euro, to protect their investments. And foreign investors who flooded the Turkish market with hot money to take advantage of high interest rates began to leave.

Exchange Rate To Turkish Lira

Inflation, not only in Turkey but worldwide, is expected to increase in the coming months, weakening the lira in the near future without interest rate protection. And it becomes a vicious cycle as the decline of the lira also increases the inflation of raw materials, which are mainly imported. Turkey imports almost all gas and oil.

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The Turkish central bank also lacks foreign currency reserves due to the previous policy of the previous governor who intervened in the market to make the Turkish lira stronger by burning US dollars through a backdoor method.

The policy made the net reserve balance of liquid banks below zero. Excluding exchanges with other financial institutions, the central bank’s foreign deposits are less than 35 billion US dollars. .

At the same time, Turkish companies and the government have to pay 13 billion dollars in foreign debt. In the next 2 months, according to Bloomberg. More than half of the debt, which amounts to 8 billion dollars, must be paid in November.

Turkish Trade Minister Mehmet Mus said on Wednesday that Turkey’s GDP increased by 21.7 percent in the second quarter of this year, after increasing by 7.2 percent in the first quarter.

Turkish Lira Forecast

He also said that exports reached 181.8 billion US dollars in the first 10 months of the year, an increase of 33.9%. compared to last year. The unemployment rate also fell 1 percent in September from 12.7 percent to 11.5 percent year-over-year.

However, experts warn that the devaluation of the lira is a huge cost to the average Turkish citizen trying to make ends meet amid rising prices.

Prices of staple foods such as potatoes, tomatoes and lettuce have increased between 62 percent and 70 percent over the past 12 months, according to official statistics. The prices of the following products also increased: chicken 68 percent, eggs 47 percent, sunflower oil 41 percent, pasta 40 percent, milk and yogurt 37 percent.

Exchange Rate To Turkish Lira

The poverty line exceeded 10,000 Turkish lira ($950) last month, higher than the minimum wage. End at 2,825 Turkish lira ($269). More than 42 percent of Turkish workers receive only the official minimum wage.

Exchange Rate Of The Turkish Lira

At the same time, housing prices have increased by nearly 30 percent, causing a housing crisis in the city. Big ones like Istanbul and Ankara.

Middle East provides unrivaled independent coverage and analysis of the Middle East, North Africa and Besides that. For more information about republishing this content and the associated fees, please fill out this form. More information about MEE can be found here. The saying that you can’t have your cake and eat it is playing out in the Turkish currency crisis that has seen the lira lose 19% against the US dollar this year. On Friday, the lira weakened to 7.3660 per dollar, down from a low of 7.3650 a week ago.

While emerging market currencies fell across the board as the dollar held firm on disappointing data from China, the Turkish currency was the worst performer as unofficial measures proposed by the central bank to stabilize the lira turned out to be only temporary.

Investors are concerned about the risk of rising inflation and even a balance of payments crisis. Concerns are also growing about declining foreign exchange reserves, costly foreign exchange interventions and Turks’ tendency to buy foreign currencies.

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During this year, President Recep Tayyip Erdogan sought to promote Turkey’s growth with a two-pronged economic policy that strives for both low interest rates and a stable currency. Even before the global spread of COVID-19, Turkey’s central bank began easing monetary conditions with a government debt-buying program.

The project comes after Erdogan fired former central bank chief Murat Cetinkaya in July last year, who opposed the president’s growth policies amid concerns that the economy could overheat by the end of 2019.

As the pandemic hit Turkey in April, the central bank stepped up efforts to keep credit flowing through the economy by cutting interest rates from 12% at the end of the year to 8.25% in May.

Exchange Rate To Turkish Lira

The “good intentions” of the president to lift the economy ship, however, has stimulated credit that has increased by 40% in the last three months, peaking in May at 50%, the fastest growth rate since 2008. The explosion of credit, including cheaper loans to households and companies, has boosted the domestic inflation rate, which was 11.76% in July year-on-year. At the same time, the demand for foreign currency increased as imports increased, causing the Turkish currency to weaken further. .

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In addition, the sale of liras occurs as the country earns less in dollars and euros due to a sharp drop in tourism and reduced exports amid the spread of the virus.

Tourism has come to a virtual standstill as well-paid Europeans, including many Germans, view Turkey as a high-risk country amid the spread of COVID-19 Image: picture-alliance/dpa/M. Schmitt

Since the first signs of trouble for the lira appeared earlier this year, Turkey’s central bank has spent billions of dollars blocking the currency.

According to the estimates of the American investment bank Goldman Sachs, the country spent in the year This is 65 billion US dollars (55.2 billion euros) in managing its currency. As a result, its total foreign exchange reserves fell by more than a third this year to $49.2 billion as of July 17. Including gold, they stand at 89.5 billion dollars.

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What makes matters worse is that the central bank is not only using its own reserves, but dollars borrowed from the national bank to buy the lira. As a result, it now owes more foreign currency to banks than it has in its treasury.

Timothy Ash, senior sovereign strategist covering emerging markets at BlueBay Asset Management, believes central banks can only do so much. “Clearly, the exchange rate intervention has failed. They are looking for reserves,” he told Bloomberg news agency, adding that raising interest rates is the only option left for Turkey.

President Erdogan, however, hates raising interest rates like the devil hates holy water. In his asymmetric view of economics, higher rates will only increase inflation. He also believes that the further increase in the cost of credit will reduce economic growth and more importantly the Create jobs.

Exchange Rate To Turkish Lira

During the economic downturn in early 2019, Erdogan suffered his most immediate electoral defeat, when his party lost control of major municipalities, including the country’s capital Ankara and commercial hub Istanbul.

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Election 2019 opposition candidate Mr. Ekrem Imamoglu for mayor of Istanbul surprised President ErdoganImage: Getty Images/B. Kara

Due to the spread of COVID-19, Turkey’s unemployment is near its highest level in more than a decade, the economy is expected to shrink by 4%.

But with Turkey’s sovereign debt giving investors less income than inflation, both Erdogan and his chosen central bank chief face a dire situation.

Turkey’s central bank said last week that it would cut cheaper loans that allow primary traders to borrow below their policy rate. The withdrawal of liquidity measures, however, provided temporary support for the lira. Investors expect aggressive rate hikes like in 2018, when Turkey faces a similar situation.

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However, Goldman Sachs analysts are skeptical if this step is enough to control the policies of Erdogan that caused the credit heist.

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