Turkish lira falls to a new record low amid questionable policy

By Al Mayadeen English
Source: Agencies
26 Sep 2023 14:07

Turkey's lira has fallen to an all-time low against the US dollar, hitting 27.5155 per dollar on Tuesday before closing at 27.2176 Turkish liras per US dollar.

A girl touches fake Turkish liras, euros, and US dollar banknotes in a shop in Istanbul, Turkey, on September 6, 2023. (AP)

Turkey's national currency has fallen to an all-time low against the US dollar on Tuesday, according to the latest trading data.

The Turkish lira indicator was trading at 27.5155 per dollar, marking its lowest-ever rate before closing at 27.2176 Turkish liras per US dollar.

It is worth noting that the Turkish lira has seen substantial cuts in value just after the results of the Turkish elections were announced in late May this year.

This could be attributed to several variables including President Recep Tayyip Erdogan's vast spending pledges, which he promised in case he emerged victorious.

Reportedly, Turkish President Recep Tayyip Erdogan began curring interest rates to keep investment cheaper and growth more possible, but after inflation started running wild by hitting an estimated 85% annual rate late last year, the President was keen on keeping interest rates low to attract more growth, marking another move, which has led to further depreciation of the Turkish lira.

In a meeting with foreign investors earlier in July, Turkey’s Treasury and Finance Minister Mehmet Simsek aired severe disapproval of the country's main lira savings mechanism.

According to Simsek, the program was a bad idea and resulted in many obstacles.

The Turkish KKM program, or "FX-protected lira deposit accounts," was initially put forward to encourage people to save in Turkish liras rather than foreign currencies by ensuring returns on lira deposits that account for any potential exchange-rate losses.

Since its inception amid a currency crisis in 2021, the total amount of money in the main deposit program has surpassed $100 billion. Because of the program's scale, it has the potential to put pressure on the lira — and the central bank's reserves — if a substantial number of savers opt out and convert to dollars.

That makes it critical to encourage people to stay in the program, according to Simsek, who questions whether the government now has the capacity to cancel it.