‘Hitting People in Every Sense’: Turkish Lira Hits Record Low

Date: 08 August 2020 - 23:20

News ID: ۸۱۴۸۲

ANKARA (Al Jazeera) – Turkey’s lira has tumbled to record lows, capping two weeks of volatility and growing concerns that state efforts to stabilize the currency could fizzle and lead to bigger problems for the Middle East’s largest economy.
Analysts warned that Ankara was running out of options to address persistently high inflation and imports, as well as badly depleted forex reserves at a central bank, stretched thin in Turkey’s response to the coronavirus pandemic.
Two years after a devastating currency crisis that brought on a recession and spurred an exodus of foreign investment, the lira was close to halving in value from the beginning of 2018.
As the currency blew through records against both the dollar and euro, Turks worried about diminished earning and spending power, and lower standards of living in a country accustomed to free trade and travel.
"It’s hitting people in every sense,” said Hasmet, 35, a software developer in the western city of Izmir.
"Without finding balance between income and costs, without the means and education to develop yourself constantly, you will end up living and retiring with average or lower standards.”
The lira fell as much as 3.5 percent to a historic low of 7.31 against the dollar before trading at 7.267.
Among the worst emerging-market performers this year, it has lost 18 percent despite the dollar’s weakness in recent weeks.
As Istanbul’s main share index dropped as much as 4.8 percent, the currency also touched a record of 8.6370 versus the euro and has shed 13 percent since the start of June against that currency.
Non-commodity imports are often euro-denominated, raising an inflation risk for Turkey after a year of aggressive interest rate cuts that drove real interest rates deeply negative. The policy rate is 8.25 percent, while annual inflation is 11.8 percent.
Money market traders raised bets the central bank would soon increase rates despite what is seen as pressure from President Tayyip Erdogan for cheap credit.
"We are a country that, politically, does not like interest rates so we do not anticipate a rate hike unless there is no other option,” said a treasury department official at one bank.
Raising the stakes, data and the calculations of traders show that the central bank and state banks have sold some $110bn since last year, including an acceleration in recent weeks, to stabilize the lira.
Some analysts say such interventions could lose steam as the central bank’s reserves continue to run thin, prompting further lira depreciation and a ballooning current account deficit.