The price of the Turkish lira relapsed heavily in reaction to the dismissal, by Recep Erdogan, of three Central Bank executives who did not follow the line set by the strongman of Istanbul. While the local currency has lost a fifth of its value against the dollar since the start of the year, inflation has soared to nearly 20% over one year.
Worse and worse. While instability still reigns among the leaders of Istanbul’s monetary institutions (controlled with an iron fist by Recep Tayip Erdogan), the Turkish lira falls to a new historic low against the greenback on Thursday. Hours after the sacking of three Turkish Central Bank executives, the local pound fell nearly 1% to a new low of 9.19 pounds to the dollar. One dollar was trading against 3.75 pounds in early 2018.
Concerns about the lack of independence of the local monetary authority, and the bad decisions taken by the Turkish president who oversees it to restore the situation, accelerate the fall of the currency.
The latest victims of Recep Erdogan are two deputy governors of the Central Bank and a member of the institution’s monetary policy committee. One of them was the only one to vote against the cut in the key rate in September, according to press reports.
Turkish lira : Galloping inflation
“The direction [taken by Turkey] is worrying and few investors, if any, will continue to believe that the Central Bank of Turkey is taking the fight against inflation seriously,” said analyst Jason Tuvey of the firm. Capital Economics
President Erdogan has already sacked three Central Bank governors since 2019, undermining investor confidence and helping to make the cost of living unsustainable for some Turks. Under his leadership and despite galloping inflation, the Central Bank lowered its main key rate at the end of September, from 19% to 18%. Recep Erdogan also regularly qualifies high interest rates as “father and mother of all evils” and asserts, contrary to classic economic theories, that they favor inflation. This policy of growth at any cost officially raised inflation to 19.25% over one year in August, four times more than the government’s initial target.
While many emerging economy currencies are going through a rough patch due to fears of monetary tightening by the Fed and then the ECB, the fall of the Turkish lira is even more pronounced as investors also fear another Turkish military operation in Syria after a series of border incidents.
