The drop of Turkish Lira

The Turkish Lira which was once quoted at 1 USD=4.5 TRY is now quoted at 1 USD=27 TRY. This was not too long ago. The drop of TRY from 2018 to today is astonishing. Lets understand this situation in more detail:

Few of the reasons why Lira depleted

1)?????The unorthodox monetary policy of President Recep Tayyip Erdogan:

Erdogan has repeatedly pressured the Turkish central bank to lower interest rates, even as inflation has risen to a 24-year high. This has made it more expensive for Turks to borrow money and has led to a surge in demand for foreign currency.

This is unusual because it is generally accepted that higher interest rates help to control inflation. However, Erdogan believes that lower interest rates will help to boost the economy. The problem with this is that lower interest rates make it cheaper for people to borrow money. This can lead to more spending, which can drive up inflation. It can also lead to a surge in demand for foreign currency, as people try to protect their savings from inflation.

2)?????The widening current account deficit:

Turkey imports more goods and services than it exports, which means that it needs to rely on foreign capital to finance its trade deficit. This foreign capital has become more expensive in recent months, as investors have become more concerned about Turkey's economic outlook.

A current account deficit is when a country imports more goods and services than it exports. This means that the country is spending more money than it is earning. To finance this deficit, the country needs to borrow money from foreign investors.

The widening current account deficit is a major problem for Turkey. It is one of the factors that has led to the lira's sharp decline in value. The lira's decline has made it more expensive for Turks to import goods and services, which has led to higher inflation. This has hurt the economy and made it difficult for Turkish businesses to compete in international markets.

3)?????The political uncertainty surrounding the war in Ukraine:

The war in Ukraine has caused a global economic slowdown, which has hurt Turkey's exports and tourism industry. It has also led to a rise in energy prices, which has put further pressure on Turkey's economy.

It is important to note that the war in Ukraine has also had a number of other negative impacts on Turkey's economy. For example, the war has disrupted supply chains, making it more difficult for Turkish businesses to get the goods and services they need. The war has also led to a decline in investor confidence, making it more difficult for Turkey to finance its debt.

Some of the numbers are as follows:

·????????The war in Ukraine has hurt Turkey's exports. In the first quarter of 2022, Turkey's exports fell by 14.5% year-on-year.

·????????The war in Ukraine has hurt Turkey's tourism industry. In the first quarter of 2022, Turkey's tourism revenue fell by 70% year-on-year.

·????????The war in Ukraine has led to a rise in energy prices. The price of Brent crude oil, the global benchmark for oil prices, has risen from $69 per barrel in February 2022 to $120 per barrel in June 2022.

It is difficult to say whether the Turkish lira will continue to fall in value. The factors that have contributed to its decline are still present, and there is no sign that the Turkish government is willing to change course. However, the Turkish central bank has raised interest rates in recent months, which could help to stabilize the lira. It is also possible that the war in Ukraine could end soon, which would remove one of the major sources of uncertainty for the Turkish economy.

Ultimately, the future of the Turkish lira is uncertain. It is possible that the lira will continue to fall in value, but it is also possible that it will stabilize or even appreciate. The next few months will be critical for the Turkish economy, and the lira's fate will likely hinge on the outcome of these events.

What are your thoughts on this drop of Turkish Lira and do you think it would appreciate?

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