Turkish President Recep Tayyip Erdogan isn’t content with only one currency crisis a year. Which is how the lira has come to be plunging headlong into its second disaster of 2021 as Mr. Erdogan sticks to policies that are hammering Turkey’s middle class.
With official annual inflation at nearly 20% and expected to rise to 20.7% , Erdogan reiterated his unorthodox claim that lower interest rates would eventually curb inflation, a stance contrary to mainstream economic theory.
Analysts believe Turkey’s current monetary policies could present further risks for the economy, such as higher inflation and more currency devaluation.
Turkish policymakers appear to be replicating an economic experiment they have used in the past, but this time external conditions are less likely to produce similar results.
Erdogan has repeatedly pointed to foreign actors as part of the cause for Turkey’s economic troubles, often referring to a malicious “interest rate lobby” in his speeches. At the same time, the Turkish leader has positioned the current lira depreciation as an opportunity to increase exports for Turkish producers.
The Turkish Statistical Institute is expected to publish November inflation data Dec. 3. On Dec. 16, the Central Bank Monetary Policy Committee will hold its last rate setting meeting of the year, and policymakers hinted further cuts might be applied.
The lira has fallen as much as 45% in value against the US dollar since the start of the year, with losses concentrated in the last three months after Central Bank monetary policymakers issued three consecutive key interest cuts.
The question is how long Turkish banks and companies can weather the new storm and how much more damage the economy can or will withstand.
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