Defying Erdogan, Turkish central bank raises interest rates

As a result, the decision to raise interest rates higher than expected was even more surprising. Analysts said the measure could finally help stabilize the lira and dampen inflation, while restoring investor confidence in the central bank's independence. But that could also put the bank in a situation for a clash with Erdogan if higher borrowing costs began to slow the rapid economic growth that he had sought to strengthen his popular support.

For nearly two decades, Turkey has experienced uninterrupted growth that has reduced poverty, increased the ranks of the middle class and, until recently, turned the nation into a favorite of international investors.

But the growth was mainly based on a construction boom fueled by cheap credit and an avalanche of public spending that Erdogan spent on the economy to stimulate even more activity. This success has become increasingly unsustainable.

In the field, the fall of the lira has had an impact on everyday life in many ways, even affecting the availability of pharmaceuticals. According to Vedat Bulut, president of the Chamber of Pharmacists of Ankara, the leading wholesalers in Turkey are short of stocks, and soon many antibiotics, as well as drugs for oncology, as well as cardiovascular diseases and neurological, will be obsolete. .

"Hundreds of thousands of people will be affected," Bulut said. "Especially for cancer patients, a delay of a few days of treatment can cause metastasis."

The vertiginous ups and downs of the lira have reflected many of the challenges faced by emerging market currencies. As the Federal Reserve began raising interest rates in the United States and the European Central Bank decided to withdraw its own monetary stimulus, investors became less risk averse in many smaller countries. development. The South African rand has lost almost a fifth of its value since the beginning of the year, while the Indonesian rupiah has fallen by almost 10% and the Indian rupee by 13% over the same period.

The lira has since recovered many of its losses. In mid-August, at its lowest, 7.2 lire were needed to buy a dollar, but on Thursday, the Turkish currency strengthened to 6 against the dollar.

While Turkey remains a relatively minor economy in the global context – its annual output is roughly the same as that of a country like the Netherlands – several European banks have investments or subsidiaries there. This exposes the region to risks from Turkey, even as the European Union faces its own challenges, including a trade dispute with the United States and concerns about slowing economic growth.