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Turkish lira: central bank is resisting currency decline after Erdogan's statements


The Turkish monetary authorities are trying to support the national currency on the foreign exchange market, but Prime Minister Erdoğan makes their work difficult: He calls higher interest rates "an evil that makes the rich richer and the poor poorer."

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Photo: Depo Photos / imago images / Depo Photos

The Turkish currency lira has gone up and down after controversial statements by President Recep Tayyip Erdogan and the intervention of the central bank. "Interest is an evil that makes the rich richer and the poor poorer," Erdogan told MPs from his AK party. Turkey has now given up monetary policy based on higher interest rates. "Instead, we have switched to a growth strategy that targets investment, employment, production and exports."

The rate of the lira against the US dollar temporarily slipped to 13.87 lira, but recently recovered to 12.42 lira - an increase of more than eight percent per day.

That was also due to the central bank.

According to its own information, this intervened directly in the foreign exchange market - "through sales transactions due to unhealthy price formations in exchange rates."

The lira only fell to a record low on Tuesday after Erdogan defended economic policy.

For one dollar, 14.00 lira had to be paid.

This year the Turkish currency has lost around 47 percent of its value.

According to experts, this is also due to the fact that the central bank has lowered its key interest rate several times, despite an inflation rate of currently around 20 percent - currently to 15 percent. This makes the lira less attractive to investors. In November alone it lost around 30 percent of its value. This is rapidly reducing the income and savings of the Turks, putting many households in distress and even means that it is difficult to find imported medicines.

“It is a dangerous experiment that Erdoğan is trying.

The market is trying to warn him of the consequences, ”said analyst Brian Jacobsen of wealth manager Allspring Global Investments.

"Imports are likely to become more expensive when the lira falls, exacerbating inflation." Foreign investment could be deterred, making it difficult to finance growth.

"Investors are getting more and more nervous," Jacobsen said.

"It's a poisonous brew."

Economists expect inflation to accelerate to around 30 percent in the coming year.

Much of this is attributed to currency devaluation.

Almost all other central banks are raising interest rates or are preparing to do so.

mic / Reuters

Source: spiegel

All business articles on 2021-12-01

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