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It has become difficult to write daily news about Turkish Lira exchange rates, due to its excessive fluctuations. Between the writing of this report and its release to readers, new record highs can be seen in the currency, which is experiencing a free fall, for the fifth day in a row, in light of a deficit and unnecessary justifications from Turkish government.
With the decline in the value of the Turkish currency, the purchasing power of citizens decreases, the burden of corporate and public debt increases, and costs increase in industry, in a country whose economy is on a “tipping point”, in the context of the political ramifications of the government, which have intensified in recent months in new issues in Azerbaijan and the Eastern Mediterranean, and finally the confrontation with France, which continues until now.
The lira hit its lowest level at 8.32 against the US dollar, losing about 28% of its value, since the start of this year, and according to what the “Al-Hurra” site was monitoring in the newspapers Turks, he expects further collapses of the Turkish lira, in the coming days, There is no limit to his stop.
The “sozcu” newspaper published a report titled “The Turkish Lira Compets the Argentine Peso, With Its Depreciation”, and compared its weekly year-over-year and three-year position against the US dollar, noting that “the performance of the lira against the dollar competes with the peso which has gone bankrupt.”
The newspaper says that “Turkey is once again going through a currency crisis, as the Turkish lira experiences a state of free fall against major world currencies such as the dollar and the euro (…) At noon today, the level was 8.32 for the dollar / Turkish lira and 9.77 for the euro / Turkish lira. “.
The problem is not today
The deterioration of the Turkish lira is not a problem today only, when we look at the performance of currencies against the dollar around the world, in weekly, annual and 3 year data, we see that the Turkish lira is doing part of the three lowest currencies (the Venezuelan bolivar is outside the list).
The latest stance on the deterioration from the Turkish government was what Turkish Finance Minister Baraat Albayrak announced, speaking about a new financial plan for the Turkish government, at the meeting to kick off the new economic program. .
Al-Bayrak said his country’s government has put in place a new economic program which aims to achieve growth of 5.8% for the next year 2021 and 5% for the years 2022 and 2023, while it expects growth of 0.3 at the end of this year.
The program announced by the Minister of Finance includes strategic reforms in the financial markets, supporting the efficient distribution of resources and increasing the level of financial awareness, adding that he expects the Turkish budget deficit to gradually decrease with the new program of 3.5% of GDP by the end of this year.
According to the new economic program, the inflation target has become 10.5% for the current year, 8% for next year 2021, 6% for 2022 and around 5% for 2023, and the program is based on three main axes, which are “the new equilibrium”, “the new economy” and “adaptation”. With the new normal, ”according to the Anadolu agency.
Economic and external factors
Professor of Financial Management at Basaksehir Academy, Dr Firas Shabu, points out that the decline of the Turkish Lira is linked to economic and internal factors, including external factors.
“The internal reasons are the huge injection of money into the market, especially in light of the Corona pandemic, as the Turkish government injected more than 200 billion pounds into the market, which has led to its saturation. total in money, ”Shaabo said in statements on the Al-Hurra website.
The economist explains that “a currency is like a commodity, the more it is supplied, the lower its value”.
Shaabu points to another internal reason for the collapse, which is “the low interest rate (8.25%), which has encouraged Turks to borrow heavily, in a scene never seen before in the past ten years”.
The above was the gateway to the collapse of the lira below 8 lire to the dollar, according to the doctor of economics, who says exceeding the price of 8 lire is linked to the inability to take a decision of the Turkish Central Bank to increase the interest rate, which was directly reflected in the market.
“In addition to not raising the interest rate by the Turkish central bank, the latest indicators for the third quarter of 2020 indicate that the volume of exports to Turkey and tourism are of unprecedented weakness, and without expectations, which is also reflected in the exchange rate, ”Shaabo added.
He is scheduled to meet the “Turkish powerhouse” on his next tour, on November 19, and depending on expectations, he may be forced to raise the interest rate, in order to halt the series of collapses, which are not yet to come. won’t just stop at the 8-pound barrier.
And if the interest rate hikes in the coming days, that won’t be the first step. According to Bloomberg data, the Turkish Central Bank raised interest rates by 300 basis points in ‘an emergency meeting in May 2018 to limit the losses of the lire and more than doubled it in an unscheduled meeting. In January 2014.
Is it enough to raise the interest rate?
While linking the collapse in more than one angle to self-interest and not raising it on the part of the ‘central’, economists have gone beyond borders and have indicated that policies taken by the government in more of an axis had a great impact on what the national currency was in the witness period. Present.
The essence of the problem, according to the Bloomberg agency, is the continued concern of investors over President Recep Tayyip Erdogan’s influence on monetary policy, noting that he “emphasizes growth and the creation of jobs and adheres to an unconventional view that low interest rates lead to lower inflation. .
Speaking to Al-Hurra, professor of financial management at Basaksehir Academy, Firas Shaabu, predicted a further collapse of the pound, stating: “The 8 pound barrier has become in the past and behind the back, and we could see a deterioration towards 10.00 lire to the dollar. “
The economist explains that “the depreciation of the pound depends on the measures of the government and its ability to activate the tools of monetary policy, in particular the increase of the interest rate and the control of the size of the currency in the market” .
He points out that “the economic situation does not predict that the situation will improve, following the Corona epidemic again, and with discussions on new ban measures in Turkish cities”.
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