Only two days after President Erdoğan has secured yet another term in office, the Turkish Lira has weakened further, falling below 20-to-the-dollar. Along with yet another crash for the Lira, further inflation and price hikes loom over the country with fuel prices leading the way.
The Turkish Lira has gradually been losing value for the last decade but President Erdoğan’s unilateral “unorthodox economic policies” has seen the Lira collapse from 7.50 to-the-Dollar in January 2021, to 18.50 to-the-Dollar in January 2023. Along with the collapse of the currency, Turkey has experienced historic inflation, price hikes and increase in cost of living just in the last few years. Despite the ever worsening crisis, Erdoğan has chosen not to waver from his policies and having secured the presidency for yet another term, he could very well be emboldened to not change course in the near future.
Meanwhile many Turks experienced a rude awakening today as those who were enthusiastically celebrating Erdoğan’s reelection Sunday night, woke up to find themselves in an even more dire economic predicament on Tuesday morning. On the day of the election, the market opened at 19.97 Lira’s to-the-Dollar and momentarily climbed up to 20.70 today, before stabilizing at around 20.40. The price hikes immediately followed the loss of Lira’s value as gasoline and diesel saw a 0.66 Lira/lt hike last night. According to multiple sources, price hikes on basic goods are expected following the fuel prices.
Erdoğan doubles down
According to an article by Reuters last week, sources inside the President’s party indicated that securing another electoral win could “embolden” Erdoğan to standfast on his unorthodox policies. Immediately following his victory, President Eroğan indicated that the Central Bank would further cut its policy rate from 8.5%:
“The interest rates have been reduced to 8.5% and you will see that inflation will go down as well. They [the opposition] cannot compete with us. They can only knock on the IMF’s door. We will remain on our path with certainty. Trust and stability are paramount…We will build an economy based on these two notions.”
“Our first order of business will be to alleviate problems caused by inflation and loss of standard of living. It is not difficult for us to solve these problems. We proved this during my time as Prime Minister when we reduced interest rates to 4,6% and inflation down to 6,2. We lived this, we did this.”
Unorthodox Policies
Since 2021, Erdoğan has insisted on a monetary policy of incessantly cutting interest rates down from 20% to the current 8,5%. Despite the Turkish Central Bank being an independent body on paper, President Erdoğan appoints the Central Bank President and has been known to dismiss them when his demands are not met. Consequently, every time the Central Bank cut interest rates, it triggered an immediate crash in the Lira and consequently making Turkey into one of the worst sufferers of inflation in the world.
The devaluation of the Lira only slowed down as Erdoğan announced the introduction of Currency Fluctuation Protected Deposit Accounts, where the Central Bank will reimburse any losses incurred by Lira depositors should the Lira slip further. While this scheme has incentivized investors to stop purchasing foreign currency and start buying Liras, it has not prevented further devaluation.
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Furthermore, President Erdoğan’s policies have not only caused currency devaluation and shot up inflation, but has also led to gaping deficits and dwindling foreign currency reserves. In the month of March, official numbers indicate that Turkey is running a 4.4 Billion Dollar deficit and its FX reserves have hit negative for the first time since 2002, despite Erdoğan stating that certain unnamed Gulf Nations have parked billions in Turkey.
