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Currency: Turkish lira falls to new lows

Currency: Turkish lira falls to new lows

The Turkish lira has come under heavy pressure since President Recep Tayyip Erdogan’s re-election. How can it be stabilized again in the long term?

The Turkish lira fell to new lows against the US dollar and euro on Thursday. The dollar rose to a record high of 23.4 lira and the euro to 25.50 lira. The day before, the lira had already recorded its sharpest daily drop against the dollar in a year.

Bloomberg news agency reported that the Turkish government had resumed dollar-selling to prop up the lira. The lira had previously fallen for 13 consecutive trading days. Actually, the dollar sales should be stopped. However, the decision had put noticeable pressure on the lira.

The Turkish lira has come under heavy pressure since President Recep Tayyip Erdogan’s re-election. Before the run-off election for the presidency at the end of May, which incumbent Erdogan won, the exchange rates were still around 20 lira per dollar and 21.50 lira per euro. The appointment of Mehmet Simsek as finance minister did not support the lira either. It stands for a market-oriented economic policy.

However, the financial markets apparently do not believe that Erdogan is actually making a lasting change in economic policy. In the past, Erdogan had repeatedly put pressure on the central bank to keep interest rates low despite the very high inflation. This had weighed heavily on the lira. Most recently, inflation was still just under 40 percent despite a decline. At the top, up to 85 percent were marked last year. In addition, there were conflicts with the West, which led to fewer investments in Turkey.

The central bank’s support measures are considered to have little prospect of success, since they are permanently lacking the funds. According to economists, only a resolute turnaround with sharp interest rate hikes and a sustained change in policy could stabilize the lira in the long term.

Source: Stern

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