Jakarta, CNBC Indonesia – Turkish President Recep Tayyip Erdogan, again battered his currency. On Friday last Friday, the value of the Turkish lira, weakened eight percent to touch the figure of 17.0705 per US dollar which is a record low in history.
This is a result of President Erdoan’s unusual plan to cut bank interest rates to deal with a surge in goods prices in the market.
The Central Bank of Turkey, TCMB then immediately intervened in the market by buying the Lira in order to restrain the rate of depreciation of its currency. at 11.16 GMT, the Lira’s losses were at 16.5 per US dollar.
However, at this level, the Lira is still losing 55% of its value this year of which 37% in just 30 days. This condition is quite disturbing for market players in this developing country.
Erdogan’s policy of pushing the benchmark interest rate down to 500 basis points since September has made inflation spike above 21%. Economists predict this figure will hit 30% in the next year, following a bubble in import prices and an emergency rise in the minimum wage.
“With Erdoan seemingly becoming more and more of an anti-interest rate stance, the longer the currency crisis lasts, Turkey could be beyond the point of no return,” said Patrick Curran of Tellimer, describing Turkey’s unusual currency position as if disconnected from the Fundamental, as quoted by Reuters, Saturday (12/18/2021).
“We are still not ready to catch the falling knife,” he said of the possibility of reinvesting in Turkish assets. “As long as Erdoan is in charge, nothing can prevent the lira from continuing to depreciate.”
The fall of the Turkish currency, will have a quick and painful impact as the Turks watch their savings and incomes disappear in value.
The Turkish president has announced an increase in the minimum wage by 50% to 4,250 lira, or the equivalent of US$ 275 per month next year. However, this policy is predicted to increase overall inflation by 3.5 to 10 points.
The minimum wage increase will affect around six million workers but, given the sharp depreciation of the lira, the new minimum wage is still lower than its equivalent of US$380 a year earlier.