Turkish lira: Why did it lose more than half of its value in 2021?

Commenting on the 8 percent fall in the Turkish lira, the chairman of the Istanbul Chamber of Commerce said on December 17 that the central bank had cut interest rates and sold its hard currency reserves the next day to stop the lira. More fall.

This rapid decline in the value of the Turkish lira is negatively affecting the living conditions of Turkish citizens, whose savings have been eroded by inflation, which has reached 20 percent according to official data, with many experts believing the real rate to exceed 50 percent. Stores change the prices of almost everyday basic food items.

Opposition newspaper, Kumhuriyat, published on December 13, lined up in front of kiosks selling bread opened by the municipality of Istanbul, where the price of bread rises to 3 and a half and then sells at a cheaper price. Liras in some suburbs of the city.

The lira has depreciated 55 percent since the beginning of this year, including 37 percent in the last 30 days, Reuters news agency reported.

Although President Recep Tayyip Erdogan announced a 50 percent increase in the minimum wage for civil servants next year to 4,250 Turkish lira ($ 275) a month, this salary is actually lower than it was a year ago ($ 380). The increase, which includes about six million civil servants, will lead to further inflation, which will further reduce the Turkish lira.

The reason for the collapse of the Turkish lira is simple and clear. Expensive on hard currency.

But this policy ignores another factor, namely that Turkey imports most of the raw materials used in the production of export goods, and these imports are in hard currency, thus increasing their price in Turkish lira. The fall in the price of the lira.

The Turkish opposition alleges that Bara al-Brock, the son-in-law of former Turkish finance minister Erdogan, has squandered more than $ 100 billion in the Turkish exchange market with the aim of maintaining the Turkish lira without significant results.

The Turkish central bank did not stop intervening again in the exchange market to prevent the collapse of the lira by providing hundreds of millions of dollars, which negatively affected the country’s hard currency reserves. The bank has intervened in the transaction market five times in the past two weeks and has sold the equivalent of $ 4 billion in its limited hard currency.

For many economists, rising inflation can be controlled by raising interest rates. But Erdogan sees interest rates as “an evil that makes the rich rich and the poor poor.”

At Erdogan’s request, interest rates have been cut five times by one percentage point since last September, during which time the Turkish lira has halved and inflation has risen to 21 percent, four times higher than the official target. 5 percent.

The Turkish lira began its decline in 2016, when its price was 2.92 against the dollar at the beginning of the year, and it lost 17 percent of its value that year, reaching 3.53 against the dollar at the end of the year. , And reached 3,779 lira against the dollar in early 2017. Its decline continued in subsequent years, reaching 17 pounds against the dollar on December 17 this year, then coming back to 16.3 pounds.