|Thursday, January 12, 2023
The decline of the Turkish lira in the foreign exchange market surpassed the "historic peak", which was.
How long will the Turkish lira decline and what experts say?
The decline of the Turkish lira in the foreign exchange market has crossed the "historic peak" barrier, which it reached a few days ago, in a dangerous indicator that does not seem to be anchored on a specific station in the coming days.
Especially when the central bank started reducing interest rates, and it recorded 11.30 pounds per dollar during the past days.
Regarding the markets, last week was once again a critical one as the Central Bank's Monetary Policy Committee took the decision to cut 100 basis points. Consequently, the policy rate has been reduced to 15 per cent.
After the center's decision to cut interest rates last Thursday, the dollar exceeded the 11 Turkish lira limit, while the interest rate on 10-year bonds rose to 20.44 percent, and the 5-year risk premium in Turkey rose to 436 points.
Foreign exchange purchases continued in the previous week, as there was an increase of $1.9 billion in foreign currency deposit accounts in banks in one week. However, experts say that it is advisable for those who have bought foreign exchange not to rush to sell.
The interest and inflation challenge
Interest is a monetary policy tool within economic policy, and is used when the economy is in a recession (weak economic growth).
With the increase in unemployment indicators in the country, the interest rate is reduced, in order to stimulate aggregate demand and thus stimulate investment, economic growth and job opportunities.
And when there is inflation, i.e. a continuous rise in prices, the interest rate must be raised in order to curb the excess demand in the market, and then calm down prices and inflation.
The Turkish Statistical Institute (TUIK) had announced the inflation figures for the month of October, and accordingly the rate rose by 2.29 percent in the mentioned month, and became 19.89 on an annual basis.
Also in October, the Consumer Price Index (CPI) rose by 2.39 percent, and the Domestic Producer Price Index (D-PPI) increased by 5.24 percent on a monthly basis.
While the annual inflation rate reached 19.89 percent in consumer prices and 46.31 percent in domestic producer prices.
A Turkish economic expert expected that the exchange rate of the dollar in Turkey would reach 15 liras until the end of this year.
Kaya Ardic, a faculty member at Berry President University in Istanbul, told Sputnik, "The Turkish Central Bank's non-interference in the fluctuations of the Turkish lira is a correct strategy for it, as he believes that the high foreign exchange rate may contribute to an increase in the volume of exports, a relative decline in imports and a dam The deficit in foreign trade, and thus filling the current account deficit as a result of the decrease in demand for foreign currency and the reduction of inflation rates as a result of the current account surplus.
The Turkish expert added, "The strategy of the Central Bank, which is based on deliberately raising the foreign exchange rate, and the policy it is following on instructions from Turkish President Recep Tayyip Erdogan, is wrong and may lead to the collapse of the Turkish lira and the deterioration of the economic situation in the country more than it is."
The expert continued, "I expect that the result of this current situation will not be good, because the foreign exchange rate is one of the most important determinants of inflation rates and the high exchange rate of the currency against the Turkish lira leads to high inflation rates and the prices of all products."
He added, "The dollar exchange rate may reach 15 Turkish liras until the end of this year, especially if the central bank cuts interest rates."
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