Bermuda Post

Monday, May 23, 2022

Turkish lira slumps further to new record low

Turkish lira slumps further to new record low

The Turkish lira has fallen to a new record low amid fears that the central bank will make a further cut in interest rates later this week.
At one point, it was down nearly 7% at just under 15 to the dollar, but it recovered slightly after the bank intervened in the market to prop it up.

The currency is now worth about half its value at the beginning of the year.

President Recep Tayyip Erdogan has pushed the central bank to keep cutting rates despite surging inflation.

Economists surveyed by Reuters expect the Turkish central bank to reduce its main interest rate from 15% to 14% on Thursday. It would be the fourth such cut in as many months.

The president and his allies argue that lower interest rates will boost Turkish exports, investment and jobs. But many economists say the rate cuts are reckless.

Last month, the country's inflation rate hit 21.7%.

The BBC's Victoria Craig in Istanbul says taxi drivers, food sellers and hotel patrons have all expressed surprise and anger as they see the value of the money in their pockets drop by the day.

Normally, central banks raise rates to combat rising prices, but Mr Erdogan has called such tools "the mother and father of all evil".

Although the bank has attempted to bolster the value of the lira by using its dollar reserves to buy the currency, analysts say it does not have enough firepower to stop the slide.

"We doubt that either intervention or a balanced current account will be effective in stabilising the currency," said investment bank Morgan Stanley in a note.

It added that the central bank's relatively thin reserves meant interventions could turn out to be counter-productive.
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