November 24, 2021

Markets Panic - Turkish Lira Is in Crisis!

 The Turkish Lira faced a crisis as the Turkish Lira depreciated sharply on Tuesday to a trading level of 13.44 against the US dollar.

Market strategy analyst Tim Ash thinks the market is in turmoil and it also carries indications that Turkey’s monetary policy is in turmoil. The lira traded at 12.7272 against the US dollar on Tuesday and was down about 15% for a short period of time.

The sale was triggered after Turkish President Recep Tayyip Erdogan defended his central bank’s continued interest rate cuts amid rising double-digit inflation. He called the move part of an "economic war of independence," dismissing the views of investors and analysts who support interest rate changes.

Inflation in Turkey is now almost 20%, which means that the price of basic goods for Turkey has soared so high that it has burdened the people.

In 2019, the Lira traded roughly 5.6 against the US dollar. It is a dramatic devaluation from the mid -2017 level of 3.5 against the US dollar.

The Lira has shown a downward trend since early 2018, following geopolitical issues, current account deficits, declining currency reserves and rising debt.

Erdogan has long described interest rates as an “enemy,” dismissing the mainstream view of the economy by insisting that raising rates actually exacerbates inflation.

The last sharp decline began last Thursday when the central bank cut rates by 100 basis points to 15%. The central bank has cut rates by 400 basis points since September alone.

According to rating agency Fitch, in August 57% of Turkey’s central government debt was in foreign currency. With a fall in value it will make it difficult to pay.