Turkish lira falls to record low after moderate rate hikes

By Al Mayadeen English
Source: Agencies
22 Jun 2023 17:55

For the first time ever, the indicator was trading above 24 liras per dollar.

A worker counts Turkish liras banknotes in an exchange currency shop in Istanbul, Turkey, Tuesday, May 2, 2023 (AP)

Trading data showed on Thursday that the Turkish Lira fell to an all-time low of 24 lira against the US dollar after the Central Bank raised the key interest rate by 6.5 percentage points earlier in the day.

At 11:39 GMT, the US dollar rate against the Turkish lira was increasing by 2.28%, to 24.109 lira per the US dollar. The previous closing level was set at 23.5708 lira.

Hence, for the first time ever, the indicator was trading above 24 lira per dollar.

Earlier today, the Central Bank of Turkey announced it raised the key rate to 15% from 8.5%. The last time the key rate was raised was in March 2021.

On Tuesday, a Turkish-based Milliyet paper report said that the Central Bank of Turkey was considering increasing the key interest rate from 8.5% to as high as 40% this week.

Experts said they are expecting that the Central Bank will increase the interest rate by 15-20% this week.

Some suspect that an additional 5% will be added within the next two meetings, while others believe that the Bank may instead implement a one-time hike to 30-40%.

The move is intended to encourage an influx of foreign investments into the Turkish economy in order to restore trust in the Turkish lira's value, the report added.

At the beginning of this year, the price of a dollar was at 18.73 Turkish lira. Before the first round of the presidential election on May 1, it rose to 19.6 lira and accelerated after it.

Turkish President Recep Tayyip Erdogan, who was recently re-elected for a third term, announced last Saturday the appointment of former Merrill Lynch economist, Mehmet Simsek, as finance minister.

Simsek formerly served as a finance minister and deputy prime minister in past governments ruled by Erdogan's AKP and is known for opposing the Turkish leader's economic policy to slash interest rates amid rising inflation.

During the term of former central bank chief Sahap Kavcioglu, the interest rate was lowered to 8.5 percent after being 19 percent in 2021.

In May, the country's inflation rate dropped to under 40 percent, a 16-month low.

Reportedly, 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. Unfortunately, that came at the price of the Turkish lira which plummeted gravely.