Turkey’s lira skidded an incredible 15% on Tuesday as the nation weathered another drop in the value in its currency, amounting to 45% over 2021.
Constituting its second-worst day in history, the lira took a nosedive after Turkish President Recep Tayyip Erdogan maintained his backing for sharp rate cuts, pledging to win his “economic war of independence” despite desperate urgings to change his economic strategy.
In its 11th straight day of losses, the lira plunged as far as 13.45 to the US dollar before recovering a bit later in the day. The lira has lost almost 26% of its value just since last week, according to a report on Tuesday from Reuters.
“There needs to be a change at the top”
With inflation spiking to almost 20% and the currency depreciating daily, the earnings of employed Turks buy fewer and fewer of their daily needs.
Erdogan pressured the country’s central bank to cut its lending rates in an effort to ease the financial crunch, but many economic experts say that the move is reckless. Turkish opposition lawmakers are now appealing for immediate elections.
Central bank Governor Sahap Kavcioglu met with Erdogan in an effort to find a way forward despite the financial quagmire in which the country finds itself; after the meeting the bank issued a statement claiming the selloff was “unrealistic and completely detached” from the fundamentals of economics, Reuters says.
At this point there has been no effort made to intervene to stem the loss in currency; the central bank officers noted that that would only occur in conditions of what they termed were “excessive volatility.”
Meanwhile, a former central bank officer who was ousted last month from his position of deputy governor, Semih Tumen, posted on Twitter that there must be an immediate return to policies that will safeguard the value of the lira.
“This irrational experiment which has no chance of success must be abandoned immediately and we must return to quality policies which protect the Turkish lira’s value and the prosperity of the Turkish people,” he said in his Tweet.
Turkey’s lira in race to the bottom
The precipitous drop on Tuesday was the single worst loss in value for the lira since the major crisis in 2018 which caused a recession, leading to an ongoing financial malaise that resulted in three years of sluggish economic growth and rampant inflation.
Although there was a slight rebound by the end of the workday, rising back up to 12.86, the last eleven days have been the worst in its valuation since 1999.
Turkey’s central bank has slashed its rates by an incredible 400 points just in the last two months, making real yields far in the negative. Almost all other banks in Turkey have begun to brace against increasing inflation.
The lira has proven to be the worst currency globally in 2021, due to what some experts believe is a faulty economic policy on the part of Erdogan, who has been the president for nearly twenty years now.
Damian Sassower of Bloomberg Intelligence, interviewed by Bloomberg Finance on Tuesday, told interviewers that “the markets are now preparing for the fact that there needs to be a change at the top. I don’t see that happening before the elections in a few years’ time so this is going to be a ‘wait and see.’ Meanwhile the economy is suffering.”
“They have negative 36 billion dollars in reserves,” he explained, “meaning that they have no ammunition to stop what’s going on here and that’s why the top’s been taken off the lira.”
Erdogan’s own AK Party is underperforming now in opinion polls, while elections are not expected to take place before the middle of 2023.
Kaan Acar, 28, a hotel executive at Turkey’s Kalkan resort, told Reuters “Prices are rising too fast. I don’t want to buy certain products because they’ve got too expensive,” adding that he is contemplating putting off a foreign trip because of financial issues.
“The fault lies with President Erdogan, the AKP government, and those who for years turned a blind eye and supported them,” he stated.
The lira fell to a new low beyond 15 relative to the Euro on Tuesday as well as Turks turned to hard assets to shore up their finances.
Turkey’s central bank already pared its policy rate last week by 100 basis points, down to 15%; experts believe there will be another cut in next month.
As recently as yesterday Erdogan defended his fiscal policy, maintaining that high rates would not bring inflation down — a view not taken by most financial experts.
He was quoted as saying after a cabinet meeting “I reject policies that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty,” causing the lira to dip even further by the end of the day on Monday.
Ilan Solot, a market strategist at Brown Brothers Harriman, told Reuters that Erdogan may very well wait until the situation comes to a “breaking point” before changing his tack.
“Right now locals seem content to keep their dollars in the local system. If they start to move money elsewhere, to Germany, to Austria, it’s another story…Then we will have a conversation about a real currency crisis.”