Econostrum | Economic News in the Mediterranean

Recep Tayyip Erdogan's economic strategy causes the pound to plunge

Written by Gérard Tur on Wednesday, November 24th 2021 à 16:35 | Read 244 times

While the inflation rate would require an increase in interest rates, the President of Turkey forces the Central Bank to lower them.

Turkey's President continues his low interest rate policy despite high inflation. Photo DR
Turkey's President continues his low interest rate policy despite high inflation. Photo DR
TURKEY. The Turkish lira has fallen by more than 40% against the dollar since the beginning of the year. Faced with an inflation of nearly 15%, Turkey should logically increase its interest rates. Recep Tayyip Erdogan does not want to hear about it because this monetary policy would slow down growth.
The Turkish President denounces a "plot". On Monday 22 November, he spoke of a "war of economic independence" to justify a new rate cut, the third in two months. His statements have panicked the markets, causing a record drop of 15% of the pound against the dollar the next day. It is part of a major trend. This is the eleventh consecutive day of decline.
Recep Tayyip Erdogan dismissed three governors of the Turkish Central Bank in three years. They refused to follow a monetary policy considered suicidal by many economists.
The Turkish lira has never been so weak against the dollar. The rapidity of this fall puts importing Turkish companies in an impossible situation. For example, Apple and some chemical companies have suspended their sales. Food prices (+22% in 2020) and energy prices (gas, electricity, etc.) are soaring.
The World Bank estimates that 13.9% of the Turkish population will be living below the poverty line in 2020.

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