The crash of the Turkish lyre. ‘It looks like Erdogan has completely flew away’

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Dudek: We may lose credibility in disputes with the EU, and this will affect the zloty

By even more than 15 percent. The Turkish lira declined against the US dollar on Tuesday, November 23. In the morning the dollar cost less than 11.50 lira, and in the afternoon even almost 13.5 (stabilizing at around 13 lira for the dollar). In the early morning on Wednesday, the crash on the Turkish currency was deepening, but later there was a calming down, and even the beginning of making up for the losses.

The Turkish currency has, in principle, been continuously weakening against the dollar for a decade. Ten years ago, the dollar cost less than two lira, today it is around 13. Only in 2021 the dollar went up more than 70 percent against the lira. But what happened on Tuesday was simply a crash.

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Erdogan continues “Erdoganomics”

The reason for such a nervous reaction of the market was the further statements of the President of Turkey, Recep Tayyip Erdogan, both in the context of domestic and monetary policy. Erdogan has been interfering in the policy of the Turkish central bank for years and is constantly exerting pressure, including he changes his bosses almost like gloves, he dismisses the rebellious members of the counterpart of our Monetary Policy Council.

The president of Turkey is pushing forward the economically absurd thesis (“erdoganomics” is jokingly said in the market) that high rates contribute to inflation, not suppress it. Inflation in Turkey is hitting 20 percent. At a time when central bankers in many parts of the world, embarrassed by high inflation, raise interest rates (or do so), in Turkey they were lowered once again a few days ago. This time they fell by one percentage point to the level of 15 percent. It was the third rate cut in a row, since September the main rate in Turkey has already dropped by four percentage points.

.‘Erdoganomics’. They hit 20 percent with inflation, and they cut rates. Lira is drowning

On Tuesday, we had another version of the propagation of erdoganomics. Erdogan praised the recent rate cuts and put severe pressure on the central bank to make it go further and even more aggressively. The President of Turkey argues that such a movement, incl. it will increase employment, exports and investments. He claims that with such moves he will control the inflation and losses of the Turkish currency. However, the market views completely differently, and in response to these words, foreign capital began to (even more) flow out of Turkey en masse, pushing the lira into the abyss.

Erdogan also spoke about the “economic war for independence” and ruled out early elections (according to the election calendar, they should be held in 2023).

Erdogan “flew away”

Apparently, however, a reduction in interest rates in Turkey is still needed in order to “use the Erdogan method” to lower inflation and strengthen the Turkish lira

– the financial portal macroNEXT mocked on Twitter.

Contrary to the previous episodes, when the value of Lira collapsed, this time no one limits access to liquidity and a short-term interest stop. remain low in the FX market. It looks like Erdogan has completely flown away

– writes BNP Paribas economist Marcin Kujawski.

This should be a warning to other central banks, including the NBP

– says financial blogger Zbigniew Papiński.

At some point, the Turkish authorities will be faced with a choice between rate hikes and capital flow control. Perhaps this decision will be made later this week

– say the economists of the Pekao bank. Indeed, there are speculations (from the Societe Generale bank, for example) that Turkey will soon be forced to raise interest rates. And indeed – the scenario in which the sinking lira may be saved by the introduction of restrictions on the flow of capital cannot be ruled out.

About Eric Wilson

The variety offered by video games never ceases to amaze him. He loves OutRun's drifting as well as the contemplative walks of Dear Esther. Immersing himself in other worlds is an incomparable feeling for him: he understood it by playing for the first time in Shenmue.

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