Turkish lira drops to record lows against US dollar | Turkey

Turkey’s currency is falling to record lows against the US dollar, exacerbating the poverty felt by households across the country and eroding popular support for Recep Tayyip Erdoğan’s government.

The lira fell 1% to a new low of 9.97 against the dollar on Thursday due to higher than expected US inflation data, and fell around 9.93 when US markets opened. The currency has lost a staggering 25% of its value so far this year following a series of deep interest rate cuts by the Bank of Turkey, despite three years of double-digit inflation.

Turkey’s insistence on lowering benchmark rates, even as other central banks around the world use higher borrowing costs to try to curb inflation, reflects Erdoğan’s belief that high interest rates, which he has described as “the mother and father of all evil”, encourage higher inflation.

Contrary to the beliefs of ordinary economists, since the lira began diving in 2018, the president has focused on keeping Turkey’s economy in growth using cheaper borrowing costs. As a sign of his now almost total control over the country’s institutions, three central bank governors have been fired over disagreements over interest rate hikes over the past two years.

While the economy had a record growth of 21.7% year-on-year in the second quarter of 2021, middle- and low-income households – including a large part of the Turkish leader’s political base – are feeling the trick. Unemployment remains above 10%, rising to 22% for young people. Inflation hit 19.9% ​​in October, raising food, energy and housing costs.

According to official data, the pandemic helped double the number of families living in poverty in 2019-20 to 6.63 million households. A report released this week by the pro-Kurdish opposition Peoples’ Democratic Party (HDP) showed that 76 people have committed suicide this year due to economic pressure.

After coming to power in 2002, Erdoğan’s Justice and Development Party (AKP) raised living standards with a development boom, particularly in the construction and tourism industries, driven mainly by foreign credit. But the lira has lost more than half of its value since 2018, wiped out savings and bankruptcy for businesses, and former loyal voters are leaving the party in droves. Opinion polls consistently show that support for the ruling party has fallen to around 30%, which is 10% less than the 2018 parliamentary elections.

The government is reportedly preparing to raise the minimum wage and subsidize energy costs, but as Turkey’s elite profit from lower borrowing costs, rising financial inequality appears to threaten the coalition’s chances in the 2023 election.

Sinem Adar, a staff member at the Center for Applied Turkey Studies in Berlin, said: “Why are Erdoğan and the AKP willingly increasing social and political costs by ruthlessly intervening in the central bank? One of the important factors seems to me to be pressure from actors especially in the construction sector. ties to the AKP, that is, the so-called ‘low-interest lobby’ that has emerged as a consequence of the party’s construction-driven growth.

“As the room for maneuver of the president and his party narrows, so does the pressure [to bow] also becomes more intense. ”

Leave a Comment