The Turkish lira’s exchange rate against the U.S. dollar fell by more than 2% on the 8th, once falling to about 17.1 to 1, the lowest level in nearly six months. After Turkish President Erdogan stated on the 6th that he would continue to lower interest rates, the lira exchange rate continued to fall and commodity prices continued to rise.
Since the beginning of this year, the Central Bank of Turkey has kept its benchmark interest rate unchanged for five consecutive months. The Turkish lira’s exchange rate against the U.S. dollar fell by 44% last year and by more than 20% since January this year.
Turkish economist Murat Samman said the depreciation of the lira will trigger more severe inflation and commodity prices will continue to rise.
Taking the spotlight on the international stage
Ankara, the capital of Turkey, was so lively on June 8.
Venezuelan President Maduro, who did not receive an invitation letter to attend the Summit of the Americas, flew to Turkey and was warmly received by Turkish President Erdogan. On the same day, Turkish Foreign Minister Cavusoglu held talks with Russian Foreign Minister Lavrov. The main topics were How to solve the problem of Ukrainian grain exports.
Turkey geographically straddles Europe and Asia and culturally integrates the East and the West, establishing a unique position in international relations. Since the beginning of this year, especially after the conflict between Russia and Ukraine, Turkey has been particularly active on the international stage, from mediating the conflict between the two countries to blocking Finland and Sweden from joining NATO.
Economic abyss again
However, Turkey, which is famous on the international stage, cannot conceal its increasingly severe economic problems. Since the beginning of this year, Turkey’s inflation rate has continued the trend of last year and has been running at a high level. Turkey’s consumer price index (CPI) in May hit the highest record since October 1998. Matching inflation is currency depreciation. Based on the 44% depreciation last year, the lira has depreciated by more than 22% this year.
Data released by the Turkish Statistics Institute on June 3 showed that Turkey’s CPI in May increased by 73.5% compared with the same period last year, setting a record since October 1998. However, Turkish economists still question this data, saying that the inflation rate may be higher than the published data. Turkey’s independent economic research institution ENAGroup said that Turkey’s real inflation rate is close to 160%.
On June 1, Turkey increased gas and electricity prices again. Household and industrial electricity prices increased by 15% and 25% respectively, and domestic natural gas prices increased by 30%. Turkey relies on imports for almost all of its energy needs and is vulnerable to fluctuations in global energy prices following the Russia-Ukraine conflict.
Although the inflation rate has been running at a high level, the Central Bank of Turkey has kept its benchmark interest rate unchanged for five consecutive months since January. The main reason is that Erdogan has always believed in his “unconventional” economics, which is against raising interest rates, insisting that high interest rates will exacerbate rather than curb inflation. He said Turkey was facing a “real rising cost of living” problem rather than a “technical level” inflation problem.
He even said on the 6th that the Turkish government is implementing a “real” economic reform plan and will continue to lower interest rates. After his speech, the lira weakened further, falling to the psychological level of 17 lira per dollar on the 8th, the first time since the lira crisis last year. Currency depreciation will further reduce the purchasing power of Turkish consumers and companies, and Turkish people will encounter more challenges in their daily lives.
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