Home » Economy » With its “limited ammunition” .. the Turkish Central Bank supports the collapsed lira, amid questions about the risks

With its “limited ammunition” .. the Turkish Central Bank supports the collapsed lira, amid questions about the risks

Turkey’s central bank moved on Wednesday to prop up the country’s collapsing currency, selling foreign reserves after the lira plunged to new depths after President Recep Tayyip Erdogan defended his unconventional economic policies.

The lira rebounded after the bank said it would take measures to tackle “exchange rates”. And if the value of the foreign exchange reserves, which the central bank used, remains unknown, observers question the risks of the process.

The fall of the lira has increased economic pressures on groups of the Turkish people who are already suffering from an increase in the prices of food, fuel, medicine and other basic commodities.

newspaper says Wall Street The Central Bank’s intervention shows that Turkish officials are viewing the collapsing lira as a potential source of broader economic and political problems, with protests recently erupting in Turkish cities, and demonstrators calling for Erdogan to resign.

18 months before the next presidential election, it seems that President Erdogan prefers economic growth, at any cost, at the expense of reducing the purchasing power of citizens who are beginning to feel the burden of rising prices for some basic products, says AFP.

The Turkish economy recorded a growth of 7.4 percent over a year in the third quarter of 2021, according to official figures published on Tuesday.

But experts are concerned about the repercussions of this race towards growth on the value of the Turkish lira and warn of the erosion of the country’s foreign exchange reserves.

In this context, the Wall Street Journal argues that the central bank has “limited ammunition to engineer a full recovery of the lira without a change in Erdogan’s policy” who has tried to fight high inflation through interest rate cuts, a path most economists say will make the problem worse.

“We got to a point where they realized we were on the brink of a systemic problem and if they can’t raise interest rates they resort to foreign currency intervention,” says Timothy Ash of BlueBay Asset Management.

After the central bank announced its intervention, the Turkish lira rose 3.3 percent to 13 against the dollar, rebounding from an all-time low of 13.91. But Erdogan told state television that he would not back down from his economic policies.

Overall, the lira has depreciated by 40 percent this year.

Investors expect the central bank’s move to support the collapsed lira, with many foreign money managers leaving the Turkish market on a large scale this year.

And since last September, the central bank has cut interest rates several times, despite severe inflation, under pressure from Erdogan.

The Turkish president disagrees with traditional economic measures, arguing that high interest rates are causing inflation to rise, and he has vowed again to maintain a low base interest rate. Thus, it is considered that it supports production and exports.

The bank cut the interest rate again, in November, (from 16 to 15 percent) for the third time in less than two months, while the inflation rate is 20 percent over a year, which is four times higher than the government’s primary goal.

It is noteworthy that during a previous crisis in 2018, the Turkish Central Bank, according to the opposition, withdrew 128 billion dollars from its reserves to support the lira.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.