Jakarta, CNBC Indonesia – Turkey is currently in the midst of a currency crisis, the exchange rate of the lira plummeting by more than 37% against the United States (US) dollar in the last 30 days. Meanwhile, so far this year, the lira (TRY) has fallen by 55%.
Unusual monetary policy triggered the lira’s slump, until it broke through TRY 17/US$ on Friday last week. When inflation is high, the central bank will generally raise interest rates. But Turkey’s central bank (TCMB) is cutting interest rates aggressively.
The policy made the lira fall, and was said to be crazy.
“If we look at where the lira is right now that’s crazy, but it’s a reflection of Turkey’s crazy monetary policy,” said Tim Ash, emerging market strategist at Bluebat Asset Management in a note. CNBC International, Tuesday (11/23).
Inflation in Turkey in November reached 21.31% year-on-year (yoy) rose from 19.89% (yoy) the previous month and became the highest in the last 3 years. The drop in the lira exchange rate is one of the triggers for accelerating high inflation.
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Although the lira exchange rate continues to decline, yesterday TCMB again cut its benchmark interest rate by 100 basis points to 14%. The lira fell nearly 6% against the US dollar and once again hit a record low of 15,736/US$. So far this year, the lira has fallen 52% and has become the worst currency in the world.
So far, the TCMB, led by Sahap Kavcioglu, has cut interest rates for the fourth month in a row for a total of 500 basis points.
The high inflation experienced by Turkey has certainly made people’s purchasing power experience a drastic decline. To solve the problem, Turkish President Recep Tayyip Erdogan, increased drinking wages by up to 50%.
With this increase, people’s purchasing power is expected to strengthen, consumption to increase so that the wheels of the economy turn, which in turn will boost gross domestic product (GDP).
But on the other hand, the increase in the ‘UMR’ is certainly at risk of triggering higher inflation. Many economists say an increase in the minimum wage by 50% would trigger inflation of 3.5% to 10%. As a result, inflation in Turkey is expected to penetrate 30% next year.
With inflation at risk of getting even higher, the lira exchange rate is of course also at risk of getting worse.
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