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Saturday, March 25, 2023
HomeWorldTurkey: Pound 'slump' uncontrollable - Erdogan insists on 'unorthodox' plan

Turkey: Pound ‘slump’ uncontrollable – Erdogan insists on ‘unorthodox’ plan

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The Turkish currency crisis accelerated today as it plunged 8% to a new record low, amid concerns about an inflationary spiral from President orthodox President Recep Tayyip Erdogan’s plan to cut interest rates amid a spike in prices.

The Turkish currency fell to 17.0705 pounds per dollar, prompting the central bank to intervene directly in the foreign exchange market to support the currency, for the fifth time this month.

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The intervention of the central bank reduced the losses of the pound, with its exchange rate reaching the level of 16.5 at 13.16 (Greek time). At this level, its losses this year are 55%, with 37% in the last 30 days – causing a major upheaval in the Turkish economy.

Erdogan’s decision to cut interest rates by five percentage points since September – the last one yesterday – has pushed inflation above 21%. It is likely to reach 30% next year due to rising import prices and the extraordinary increase in the minimum wage, according to economists.

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“With Erdogan seemingly insisting more on his stance against high interest rates, the longer the currency crisis lasts, Turkey could cross the point of no return,” a Tellimer official said, noting that the pound was completely disconnected from basic economic data.

“We are still unable to catch the falling knife. “As long as Erdogan is at the helm, there is nothing that will stop the pound from depreciating,” he added, referring to the possibility of new investments in Turkish assets.

The side effects are quick and painful as Turks see their savings and incomes evaporate.

Erdogan announced a 50% increase in the minimum wage to 4. 4,250 ($ 275) a month from next year, but that is expected to boost inflation by 3.5 to 10 percentage points.

The increase is about 6 million workers, but, given the sharp devaluation of the pound, the new minimum wage is still lower than the $ 380 equivalent last year.

“We believe that the current policy mix is ‚Äč‚Äčessentially unsustainable,” said S&P’s director of credit ratings in Europe, the Middle East and Africa.

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