ANKARA, Jan 1 — Turkey’s lira has logged its worst year since President Tayyip Erdogan came to power nearly two decades ago, despite his appeal yesterday for Turks to trust his unorthodox policies of slashing interest rates in the face of soaring inflation.
To ease the turmoil, the president unveiled a scheme two weeks ago in which the state protects converted local deposits from losses versus hard currencies, sparking a sharp 50 per cent rally in the lira with support from the central bank. “We have been waging the battle to save the economy from the cycle of high interest rates and high inflation,” he said, reiterating his unorthodox view that high rates lift prices.The currency crisis, the second since 2018, has badly eroded Turks’ savings and earnings while the record volatility has upended households’ and businesses’ budgets and future plans.
Economists and former central bankers have called the easing reckless given inflation is expected to hit 30 per cent in December due to the lira depreciation. Goldman Sachs expects it to reach as high as 40 per cent by mid-2022. Many economists have warned that if the lira continues to depreciate, the scheme could further stoke inflation and add to the state’s fiscal burden.
The central bank announced five direct interventions to support the lira in early December, including more than US$2 billion in the first three efforts.