Turkey’s next currency crisis approaches

The Turkish lira is down by 14% against the dollar this year and has been trading above the ₺8/€1 level for the first time in two years. 

The Turkish lira is “back in the firing line”, says William Jackson of Capital Economics. The Turkish tourism industry has been hit hard by the pandemic, reducing crucial foreign-currency earnings. 

Rising tensions with EU member states have led to talk of economic sanctions. The result is that the lira is down by 14% against the dollar this year and has been trading above the ₺8/€1 level for the first time in two years. 

Turkey’s central bank is thought to have spent more than $60bn propping up the lira this year but it is fast running out of options, say Caitlin Ostroff and Anna Isaac in The Wall Street Journal. Exchange reserves are dwindling and the only remaining option – an interest rate hike – is practically ruled out because of pressure from President Recep Tayyip Erdogan to keep credit easy. 

That means that devaluation looks likely, but if the authorities lose control of that process then inflation – already at 11.76% – could spike higher. Foreign investors have pulled $4.3bn out of Turkish shares this year, which is only exacerbating the currency’s problems. 

It is only two years since Turkey’s last currency crisis. On that occasion the lira lost more than 25% of its value against the dollar and inflation peaked at 25%, forcing the central bank to hike interest rates to an eye-watering 24%. A series of currency crises have seen the lira lose 83% of its value against the US dollar since August 2008.

Recommended

Government expected to delay increase in state pension age to 68
Pensions

Government expected to delay increase in state pension age to 68

The increase in state pensions age to age 68 could be shelved amid concerns over falling life expectancy.
22 Mar 2023
Bank bailouts are bullish for bitcoin and gold
Investments

Bank bailouts are bullish for bitcoin and gold

The collapse of Silicon Valley Bank and Credit Suisse has shaken investor confidence in the global financial system. Dominic Frisby explains what this…
22 Mar 2023
What is happening to house prices?
Personal finance

What is happening to house prices?

House prices may have been slowing down, but asking prices are on the rise. We look at the latest on what is happening to house prices as ONS releases…
22 Mar 2023
Five changes to state pensions coming next month
Pensions

Five changes to state pensions coming next month

There are several changes happening to state pensions in April. We explain what’s happening.
22 Mar 2023

Most Popular

Rightmove: UK house prices up £3,000 as property market rebounds
House prices

Rightmove: UK house prices up £3,000 as property market rebounds

Rightmove’s latest house price index shows the property market has been resilient despite an economic downturn
20 Mar 2023
Can I avoid IHT by stuffing all my money into a pension?
Personal finance

Can I avoid IHT by stuffing all my money into a pension?

The ditching of the lifetime allowance could enable millions of pension savers to avoid inheritance tax. We explain how.
20 Mar 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023