Minutes before President Tayyip Erdogan delivered a speech renouncing high interest rates once again, the Turkish central bank said it was selling dollars to support the lira. The bank has $25 billion of net reserves as of November, down from $28 billion the month before. But that includes another $48 billion of swaps from local banks, without which reserves are firmly in negative territory.
It’s a flawed bid to support Erdogan’s ultra-loose monetary policy, which has caused the lira to fall more than 40% versus the dollar this year. Propping up the currency might slow Turkey’s descent into hyperinflation, but the country’s pot of dollars risks running out.
The bank sold some $128 billion to steady the lira in 2019-2020 and still had to hike rates. When net reserves were at $28 billion in August 2020, it took just five months to run them down to $11 billion – the lowest since at least 2003. The lower reserves fall, the more likely another depreciation becomes. Erdonomics is a pricey endeavour.
Turkey’s lira crashing
Once again, Turkey is in the throes of a currency crisis. The lira has lost more than 40 percent of its value against the United States dollar this year, making it the worst-performing of all emerging market currencies.
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In November alone, the lira lost nearly 30 percent of its value against the dollar – landing it well into currency crash territory.
The rapid slide has ushered in a wave of dollar hoarding, and even witnessed the unusual sight of people taking to the streets to protest President Recep Tayyip Erdogan’s handling of the economy.
For his part, Erdogan has blamed the lira’s troubles on foreigners and their supporters in Turkey.
Reuters with additional input by GVS News Desk