The Turkish lira is falling to its lowest level again

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The value of the Turkish lira, which has been in a sharp decline for weeks, fell to a new record on Wednesday 12/15 to 14.7 liras against the dollar, on the eve of a central bank decision on interest rates.

Since January 1, when it was worth 7.43 liras to the dollar, the Turkish currency has lost more than 49% of its value against the greenback, including 30% in the month of November alone.

At a time when the inflation rate in November exceeded 21% on an annual basis, Turkish President Recep Tayyip Erdogan has so far refused to raise interest rates and adjust his fiscal policy.

On Thursday, the Turkish Central Bank is expected to announce a decision on the key interest rate.

And last month, the bank again cut the rate by one percentage point (from 16 to 15%) for the third time in less than two months, at the request of the country’s president, who asserts, contrary to traditional economic theories, that high interest rates perpetuate price hikes.

It seems that President Erdogan, whose popularity has fallen to its lowest levels after 19 years in power, is betting on economic growth at any cost before the presidential elections scheduled for 2023.

But for Turks, the collapse of the currency and the rise in prices are unsustainable, as the country relies heavily on imports, especially raw materials and energy.

This much-criticized fiscal policy and the dependence of the central bank, which Erdogan has dismissed three of its rulers since 2019, is causing the currency to depreciate, but the president warned in late November that he would continue to “resist pressure”, denouncing a “conspiracy” targeting the Turkish economy.

“We see very well the game of some with the exchange rate, currencies, interest rates and price increases,” he said at the time.

A senior Western official said that Erdogan is convinced of the correctness of his fiscal policy and does not intend to abandon it.

“Erdogan is acting so freely that there is no longer anyone around him to confront his core belief, whether it is related to his religious principles or his (like) trader’s way of thinking – or a combination of the two: he seriously thinks it will work,” the official said, without revealing his name.

In addition to his dismissal of three central bank governors since 2019, the Turkish president has replaced the finance minister three times since 2018, most recently on October 2, in the midst of the crisis.

More than five thousand people demonstrated Sunday in Istanbul to protest against inflation and the decline in purchasing power, in the first large gathering due to the turmoil that the Turkish economy has been going through for weeks.

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