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FX.co ★ Turkey’s inflation soars while lira depreciates

Turkey’s inflation soars while lira depreciates

Turkey’s inflation soars while lira depreciates

When a country’s leader interferes in the central bank’s activity, this won’t do any good for the local economy. That is what Turkish President Recep Tayyip Erdogan has been doing for the past few years. His attempts to strengthen the national currency, the Turkish lira, turned out to have the opposite effect. Thus, the galloping inflation rate in Turkey has exceeded analysts’ gloomiest predictions. The Turkish lira has tumbled to record lows while the Central Bank of the Republic of Turkey, which has long lost its independence, is ready to obey every wish of the country’s leader. However, this time, the regulator may not be able to extend a rate cut this summer that is sought by the country’s president. According to Cristian Maggio, head of portfolio strategy at TD Securities, “September is really the earliest they can pull the trigger. That is assuming that Erdogan doesn't call Kavcioglu (the central bank’s governor) and tells him to cut if he still wants his job.” In June, consumer prices climbed by 17.5% on a yearly basis while producer prices soared by 42.9%, having set a new record. The last time the prices jumped so rapidly was in October 2018. Food inflation rose by 20% in June compared to 17% in May. The current figures have far exceeded the central bank’s inflation target of 13% set for the year’s end. Against this backdrop, the Turkish lira has plummeted. Yet, Erdogan does not seem to be worried about this and still insists on a rate cut in July or August this year.


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