Last month, the Turkish Lira lost more than 40% of its value against the major currencies in the world. The depreciation of the Turkish lira was not caused by the deterioration in economic activity or an unexpected disaster such as an earthquake or a virus epidemic. The Turkish economy grew by 7.4% in the third quarter compared to the same period of the previous year, and the economy is progressing normally.
As can be seen in the chart below, the Turkish Lira has been depreciating against the dollar for a long time. However, the momentum of the depreciation has increased even more in the last three weeks.
Economists agree that the weakening of the Turkish Lira stems from the irrational interest rate policy being implemented. Although annual inflation is 19.89% in Turkey, the Turkish Central Bank reduced the policy rate from 16% to 15% on 18 November. Turkish citizens prefer to convert their money into currencies such as the US Dollar and Euro, rather than being exposed to a negative interest rate of nearly five percent.
The question on everyone's minds is why officials insist on the low-interest rate policy, which causes the Turkish lira to lose value immeasurably. It is known that the increase in the exchange rates will further increase the already high inflation. In the studies conducted by the Turkish central bank, which has made successive decisions to cut interest rates, twenty percent of the increase in the exchange rate is going to turn into inflation in the following period. This means that the exchange rate increase in the last 1 month will lead to an additional 8 percent increase in inflation. In the meantime, I would like to note that no one in Turkey believes the official inflation rate of 19.89% that was announced by the Turkish Statistical Institute. Because people face much higher inflation in their daily life.
Why do decision-makers insist on keeping interest rates low? President Recep Tayyip Erdogan wants to revive the economy by keeping the Turkish lira interest rates low. The rhetoric that has become evident recently is that the low-value Turkish lira will lead to an increase in exports. The fact that interest is considered objectionable in terms of Islam is one of the factors that make anti-interest politically attractive. On the other hand, high exchange rates in Turkey, which has an integrated economy with the outside world, mean the impoverishment of the people.
President Erdogan's low-interest policy preference is not a new phenomenon. President Erdoğan argues that, contrary to the generally accepted understanding of the economy, interest is the cause, and inflation is the result. Although this understanding caused inflation to rise from single digits to 19.9 percent in Turkey, he still maintains this claim. He previously dismissed two Central Bank governors on the grounds that he had not lowered interest rates at the desired pace. The last appointed central bank governor seems to have adapted to the low-interest policy for now.
Opinion polls show that President Erdogan's party is losing votes regularly. Although his insistence on low interest did not produce a positive result in economic terms, it set the agenda for the first time in a long time. We will see in the coming days whether this situation will have a positive effect on the votes of his party. My prediction is that the recent turmoil in the economy will cause the AK Party to lose even more votes.
According to a study conducted by the world economic forum in the first months of 2021, Turkey ranks fourth in the world with 16% cryptocurrency ownership. (Nigeria with 33% in the first place) With this rate, Turkey is in first place in Europe by far. Turkey is followed by Switzerland and Greece with 11% cryptocurrency ownership. Cryptocurrency investors have gained more than sixty percent in Turkish Lira due to the recent increase in the dollar/TL rate. For those who invest in Hive, the situation is much brighter. Despite this, I follow the depreciation of the Turkish Lira with concern.
On the other hand, high inflation and negative real interest rates are not only valid for the Turkish Lira. The recently announced 6.2% inflation in the American economy points to a serious negative real interest rate. In this environment, investing in cryptocurrencies with low inflation stands out as a reasonable option.
If an early election decision is not taken, the elections in Turkey will be held in June 2023. With the current interest rate policy, it is a matter of curiosity how the value of the Turkish Lira will follow until then. Another reason why the upward movement in the exchange rate is so harsh is the possibility of the Central Bank of the Republic of Turkey cutting interest rates in December as well. Taking a position against Turkish currency right now is like playing poker by seeing your opponent's hand. Investors who know that the interest will not rise under any circumstances, sustain TL short positions with peace of mind. Hopefully, common sense will prevail soon.
Thank you for reading.
So many developing countries will experience similar kind of free fall.
Luckily anyone can store their wealth in Bitcoin
Posted Using LeoFinance Beta
Hi @nathanmars,
Turkish Lira is continuing to lose its value. Having savings on crypto turns to bliss in such circumstances.
I wonder where this will end. I hope it doesn't cause bigger crises in the country.
ülkede büyük bir kriz olmadan bu rte hayranlığı bitmez. Halk bu durumda hala rte rte diyor.
Celladına aşık olduysa bir millet
ister ezan ister çan dinlet.
itiraz etmiyorsa sürü gibi illet,
müstehaktır ona her türlü zillet.
I hope so
Even holding dollars these days gives me a similar feeling. Should he adopt Bitcoin like El Salvador, that would be a 180. I can understand the reasoning of keeping interest rates low.
I can also guess the reason, but I don't prefer to express it as I can't prove it.
biz gençler umudumuzu kaybettik. Elimizden de bir şey gelmiyor
Umutsuzluğa yer yok. Kimler geldi kimler geçti. Ben kişisel gündemime odaklanıyorum.