Turkey’s lira recovered as much as 7% on Wednesday, November 24, after a historic slide to record lows a day earlier triggered by President Tayyip Erdogan‘s defense of rate cuts, but volatility and steep price rises still worried consumers and investors.
The currency hit all-time lows against the dollar in all 11 consecutive sessions before Wednesday and has lost as much as 45% of its value this year, with around half of those losses occurring since the start of last week.
However, the lira strengthened as far as 11.6 to the US currency on Wednesday afternoon before easing to 12.08 by 1610 GMT, still some 38% weaker than at the end of last year.
Bankers said liquidity had virtually dried up with moves to the all-time low of 13.45 on Tuesday, November 23, driven by panic dollar buying.
Many Turks, already grappling with inflation of around 20%, fear price rises will accelerate. Opposition politicians have accused Erdogan of dragging the country towards disaster.
Thousands of angry Turks queued at gasoline stations late on Wednesday ahead of a steep hike in fuel prices, as others took part in scattered protests against the authorities’ handling of the economy.
Retailers too are struggling with the turmoil, with some websites stopping sales of electronic products on Wednesday.
A sales representative at an Istanbul Apple store said people were thinking of electronics as an investment as much as items to use. “It is pretty surreal with the economy and all, but people see it as a store of value,” the representative said.
Erdogan has defended the central bank’s monetary policy and vowed to win his “economic war of independence,” but faces widespread criticism, including from top economists, and calls for action to reverse the slide in the currency.
There has been no sign of any intervention to boost the currency. The central bank said on Tuesday it could only do so under certain conditions in “excessive volatility.”
A banking source later told Reuters that officials from the central bank, Turkey’s BDDK banking watchdog, and the board of Turkey’s banking association will meet on Thursday afternoon, November 25, to discuss recent developments in the economy.
“With today’s exchange rate, official inflation could exceed 30% in the coming months. With the current deposit rate this means a real interest rate of -15%,” former central bank chief economist Hakan Kara wrote on Twitter.
“If measures are not taken urgently, the financial system cannot cope with this,” he added.
Erdogan has pressured the central bank to move to an aggressive easing cycle with the goal of boosting exports, investment, and jobs.
But many economists have described the rate cuts as reckless and opposition politicians called for immediate elections. Turks told Reuters the dizzying currency collapse was upending their household budgets and plans for the future.
“The deviation from orthodox policies has a major toll on the economy,” said Selva Demiralp, director of the Koc University-TUSIAD Economic Research Forum and a former US Federal Reserve economist.
“There is an easing cycle on paper, but it will have a net contractionary impact on the economy,” she said, commenting on the rate cuts and apparent indifference to the consequent lira depreciation.
Following a meeting between Erdogan and central bank Governor Sahap Kavcioglu, the bank issued a statement saying the sell-off was “unrealistic and completely detached” from economic fundamentals.
Two sources said Kavcioglu was holding preliminary talks at the presidential palace on Wednesday with United Arab Emirates officials regarding a potential swap agreement.
Tuesday’s slide was the lira’s largest since the height of a currency crisis in 2018 that led to a sharp recession and three years of below-par economic growth and double-digit inflation.
The central bank has slashed rates by a total of 400 basis points since September, leaving real yields deeply negative as virtually all other central banks have either begun tightening policy to stem rising inflation, or are preparing to do so. – Rappler.com