With every decision taken by the Turkish central bank to cut interest rates on the Turkish lira, the Turkish lira continues to depreciate as the exchange rate of the lira against the US dollar fell to almost 17 lira on Saturday.
The rapid depreciation of the Turkish lira has had a negative impact on the living conditions of Turkish citizens. Change in grocery prices.
The Turkish lira has suffered an unprecedented fall.
The Turkish lira against the US dollar fell to an all-time low on Saturday after the central bank announced another cut in the exchange rate on Friday as part of President Recep Tayyip Erdogan’s economic plan.
The exchange rate of the lira against the US dollar has fallen more than 2% to 16.42 since it closed at 15,675 last Thursday, and the value of the US dollar has more than doubled this year, causing turmoil in the largest emerging economies.
As expected, the central bank cut interest rates by 100 basis points and cut rates to 500 points from September, making the currency less attractive to investors and depositors.
Why did it lose more than half of its value in 2021?
The reason for the collapse of the Turkish lira is simple and obvious and is President Erdogan’s unusual economic policy of keeping interest rates low to boost Turkish economic growth and boost export opportunities for Turkish goods.
But the policy ignores another factor, namely that Turkey imports most of the raw materials used in the production of its exports, and those imports are hard currencies, so their price is in the Turkish lira, which doubles the price of the lira.
Turkey’s central bank continued to intervene in the foreign exchange market and set aside hundreds of millions of dollars to prevent the collapse of the lira, which negatively affected the country’s hard currency reserves. Over the past two weeks, it has sold a limited stake in the hard currency, valued at about $ 4 billion.
The Turkish lira is falling and inflation is rising
Inflation in Turkey has risen again as the government has failed to control the devaluation of the local currency, the lira.
Inflation rose to more than 12% in February last year, and for the second month in a row, putting pressure on the Turks, most of whom were hit by sharp rises in prices of goods and services.
The Turkish Bureau of Statistics said in a statement on Tuesday that the Wholesale Price Index (WPI) was up 0.35% year-on-year, up 12.37% year-on-year and 1.71% year-on-year.
Erdogan continues to be stubborn
The decision comes despite Turkish President Recep Tayyip Erdogan’s announcement on Thursday that Turkey’s minimum wage will increase by 50% next year to 4,250 lira ($ 275.44) as part of efforts to mitigate the effects of the currency collapse and rising inflation. The effects of the currency collapse on the Turkish citizen in the short term cannot be underestimated.
For many economists, high inflation can be controlled by raising interest rates, but Erdogan believes that interest rates are “a ghost that makes the rich rich and the poor poor.”
The minimum wage in 2021 was about 2825 lira per month and its exchange rate against the US dollar fell to 185 US dollars, and at the beginning of the year it was 380 US dollars due to the currency crisis, the second time in Turkey. Within 4 years.
Inflation rose to more than 21% last month and will reach 30% next year.