ISTANBUL, Turkey —
The
Turkish lira Wednesday extended its historic slide on the eve of a meeting
at which the central bank was expected to lower interest rates for the fourth
month in a row.
اضافة اعلان
The lira has shed half its value since the start of the year — and 30
percent in the last month alone — as policymakers bow to President
Recep Tayyip Erdogan's wishes to bring down borrowing costs despite soaring inflation.
A dollar could buy three liras in 2016 and 7.43 liras on January 1. It was
worth 14.70 liras on Wednesday while the annual rate of consumer price
increases stood at more than 20 percent.
Erdogan has launched a self-declared "economic war of
independence" that defies conventional market economics by fighting
inflation through a reduction of borrowing costs.
Central banks around the world are instead either raising or preparing to
raise rates to combat consumer price jumps caused by factors related to the
coronavirus pandemic.
Analysts and diplomats believe Erdogan unleashed his pro-growth policy in a
bid to revive sagging approval numbers ahead of a general election due within
the next 18 months.
One senior Western official said Erdogan feels "unchained" after
stacking the central bank with allies and ousting ministers who refused to
subscribe to his unorthodox views.
Dropping support
Erdogan's public support levels have languished near the low end of his
19-year rule for much of the past year.
Most polls show him losing in a runoff against potential presidential rivals
— a defeat that could leave his Islamic-rooted party in disarray.
Erdogan has cited China as an example as he pushes for economic growth at
all costs.
China brought down the value of its currency to boost exports and achieve
spectacular rates of economic expansion over most of the past two decades.
This created a new middle class that helped
China achieve more sustainable
consumer-driven growth.
Turkey's economy also expanded at an annual rate of 7.4 percent between July
and September.
But most analysts believe Erdogan's attempts to boost jobs and propel
economic expansion through cheap exports are likely to end in social turmoil.
'Heightening risk'
Turkey imports most of its raw materials and spends foreign currency to buy foreign
oil and natural gas.
The lira's steady depreciation makes these purchases more expensive.
Economists estimate that Turkey's net hard currency reserves are running
dangerously low — and are in negative territory when so-called "currency
swap" agreements with allied countries' banks are taken out.
The central bank has depleted its reserves further by intervening four times
in the past month to help cushion the lira against more dramatic single-day
falls.
But the losses continue as Turks buy up gold as well as dollars and euros in
a bid to preserve their savings.
S&P last week became the last major global ratings agency to switch
Turkey's credit outlook to negative.
Current policies have "further undermined the exchange rate of the lira
and worsened the inflation outlook, heightening the risk of banking system
distress."
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