FX.co ★ Turkish lira sinks to all-time low

The Turkish lira dropped to its all-time low in the international financial market. It reached the price of 28.6 lire per dollar.

On November 7, the Turkish currency slumped to its record low against the US dollar. Unexpectedly, its price nosedived to 28.6 lire for one US dollar. A bit later, the lira inched up to 28.49. As a result, it lost 0.2%.

Analysts consider this a significant blow to the Turkish economy. What is more, forecasts do not suggest any improvement.

Notably, in early summer 2023, one dollar cost 21 lire, whereas at the beginning of the year, its price was 13.5 lire. According to estimates, the Turkish lira is one of the worst-performing emerging market currencies, together with the Russian ruble and the Argentine peso. Economists suppose that such a slump in the Turkish lira was caused by a long-lasting policy performed by Tayyip Erdogan. The fact is that the president chose an alternative economic theory, which suggests a cut in the key interest rate aimed at slackening consumer price growth. However, the selected approach failed to bear fruit.

Curiously, economists warned the Turkish leader about such an outcome, but to no avail. Instead, he was demanding monetary policy loosening ignoring the ongoing rise in prices. The overall effect turned out to be alarming. Thus, the lira tumbled, creating threats to the national economy.

After the victory in the presidential election, Tayyip Erdogan removed the central bank governor from his post and replaced him with Hafize Gaye Erkan, a finance executive in the United States. In early June, just after Hafize Gaye Erkan took office, the benchmark rate skyrocketed to 30% from 8.5%. In addition, at the end of October, the central bank raised the key rate to 35%. Against this backdrop, inflation may surge to 68% by the end of 2023. Nevertheless, such a rise is smaller compared to a stunning 85% jump in 2022.