Turkey: Lira Depreciates to Record Low Levels in November
By Georgi Ninov - Research Analyst
The Turkish lira dropped to a record low levels during the second half of November. A US dollar could be bought for 3.96 TRY on November 23, while the euro was valued at 4.69 on November 28. The discrepancy has been rising rapidly since the middle of September after political tensions between Turkey and the United States.
The falling lira is not the only worry for the Turkish economy lately. Inflation, which is particularly high in 2017, has been on the surge since July and hit 11.9% annual growth in November (11.8% core CPI). Unemployment remains high (10.8% in August on seasonally adjusted data) despite a declining trend in the past months.
In an effort to fight the rise in inflation the Turkish Central Bank (TCMB) has raised the Central bank funding cost by 25 basis points (12.25 since November 22). Increasing interest rates is a popular tool among central bankers since it cuts the inflow of cash in the economy. This move, however, was met with criticism from influential Turkish president Erdogan whose social agenda relies on securing cheap credit. Erdogan claimed that the TCMB was on the "wrong path" and that high interest rates cause inflation.
The conflict between Erdogan and TCMB has caused investors to further doubt the economic climate in the country, especially after the coup d'état attempt in July 2016. Trade value of bonds has declined more than five times since the beginning of the calendar year (330.6bn USD in January to 61bn USD in October). If political pressure continues to be a factor in monetary policy by restricting monetary tightening, there is a significant chance that the Turkish currency will keep depreciating.