Turkey ahead with the cuts
As expected, however, the Turkish central bank cut the cost of money for the fourth consecutive month, bringing it from 15 to 14 percent, in line with forecasts on the eve. The official rate has fallen by 5 percentage points since September.
The lira still shoulder
The collapse of the Turkish lira after the new rate cut. The currency crashed once again after hitting a new all-time low of 15.75 against the dollar with a decline of more than 5%, thus preparing to record the worst annual performance since the financial crisis of 2001. The Turkish Central Bank is for months aligned with the ultra-expansionary policies of President Recep Tayyip Erdogan, who has turned away any minister or central banker who questioned these choices. With today’s decision, 16 December, the Central Bank has brought the cost of money 7 percentage points below inflation, which has in the meantime risen over 21 per cent. A reckless maneuver with unpredictable consequences.
Erdogan runs for cover …
In recent months, the slide of the lira has been truly thunderous: at the beginning of September it was trading at around 8 against the dollar and has now fallen to almost 16. For a country that largely depends on imports for its internal consumption, a devaluation of this size it translates into galloping inflation and a dramatic reduction in purchasing power by the population, which in fact has not hidden its discontent in recent weeks.
This explains the decision of President Erdogan to increase the minimum monthly wage by 50%, which at the beginning of 2022 will go from 2,826 to 4,250 lire. The maxi-increase serves to compensate at least in part the effect of the devaluation on the purchasing power of the Turks, or at least 40% of the workers who receive the minimum wage.
… but that’s not enough
However, the collapse of the currency was so strong that the increase is by no means sufficient: 4,250 lire at today’s exchange rate is equivalent to about 270-275 dollars, while 2,826 lire at the beginning of the year – when the lira was trading around 7 , 4 against the American currency – corresponded to 380 dollars. Not to mention that such a sudden increase in the minimum wage, economists warn, will bring new inflation.
–
