Lira collapses to record low, how will this impact Turkish economy?

The Lira fell down to an all-time low of 13.45 against the US dollar on November 23rd and weakened as far as 13.15 on November 24th before moving slightly up to 13.05. 

Created On: Nov 24, 2021 17:24 IST
Lira collapses to record low
Lira collapses to record low

Turkish Lira tumbled to a record low against the US dollar on November 24, 2021 increasing worries about Turkey's monetary policy.

The Lira fell down to an all-time low of 13.45 against the US dollar on November 23rd and weakened as far as 13.15 on November 24th before moving slightly up to 13.05.                                                                    

Lira's tumble comes amid worries over soaring inflation and another economic fallout. The currency has hit record lows in 11 consecutive sessions, falling by nearly 43 percent since the start of the year. The currency saw an almost 24% decline since the beginning of last week.

Lira conversion

1 Turkish lira to INR

1 Turkish Lira = 23.32 INR

1 Turkish lira to USD 

1 TRY = 0.09 USD

Why is Turkish lira's collapse concerning?

Lira's recent collapse has been the largest since the height of a currency crisis in 2018 that had led to a sharp recession. It had brought on three years of sub-par economic growth and double-digit inflation. The currency collapse is upending the household budgets of the Turkish people and their plans for the future.

Turkish economy in a downward spiral?

•The Turkish central bank has slashed rates by almost 400 points since September. Turkish President had applied pressure on the central bank to resort to an aggressive easing cycle to boost exports, investment and jobs - even as inflation soared to nearly 20 percent. 

•However, this has accelerated currency depreciation, which is cutting deep into the earnings of the Turkish people.  Many economists called the rate cuts reckless while the opposition appealed for immediate elections. 

•However, Erdogan defended the central bank's monetary policy, vowing to win his "economic war of independence". But there was no hint of an intervention to stop the economic meltdown. 

•The central bank issued a statement on November 23rd saying that it could only intervene under certain conditions in "excessive volatility".

•According to former central chief economist Hakan Kara, "If measures are not taken urgently, the financial system cannot cope with this."

Impact 

The policy rate now stands at 15% while inflation runs at 20%. High inflation risks fuelling more currency weakness and stifling growth while consumer confidence is hit. 

While annual inflation stood at almost 20 percent in October, food price inflation, which was more than 27 percent year on year in the same month. Food inflation has hit low-income households especially hard.

High inflation could also further undermine public support for the Turkish President, whose two-decade rule was associated with rising prosperity for years. 

The opposition has been demanding early elections so that they can capitalise on the growing discontent over the current economic situation of the country. 

 

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