Turkey's Lira Hits Record Lows After Rate Hike

Facts

• After Turkey's central bank raised its key rate by 650 basis points to 15% on Thursday, the Turkish Lira hit its lowest value on record, weakening by as much as 3.3% on Friday.¹
• The Lira — which has continued to devalue since Pres. Recep Tayyip Erdoğan was re-elected in last month's elections — was last trading at around 24.97 against the greenback.²
• The hike, the first since December 2020, is intended to bring inflation down to 5% from nearly 40% and to "establish the disinflation course as soon as possible." Turkey's official currency has reportedly lost 80% of its value in the last five years.³
• The move marked a shift in policy after years of monetary easing, in which the one-week repo rate was cut to 8.5% from 19% in 2021 despite skyrocketing inflation.¹
• Amid soaring inflation, a plunging Lira, the rising cost of living, and depleting foreign reserves, Turkey's Labor Minister on Tuesday announced a 34% increase in the country's minimum wage to ₺11,402 ($483) a month.⁴
• Turkey's foreign currency and gold reserves have tumbled by $9.5B and $7.9B, respectively, from the end of March to May 12 — a decline of 15%.⁵

Sources: ¹Reuters, ²CNBC, ³BBC News, ⁴Al Jazeera, and ⁵FT.

Narratives

• Narrative A, as provided by Daily Sabah. Though the path ahead is challenging, Erdoğan's adoption of a policy to raise interest rates is a sign his government is doing its best to promote economic growth. Additionally, the President's new picks for the finance and treasury ministry, as well as the new central bank chief, will ensure Lira regains its pre-2014 value.
• Narrative B, as provided by The Conversation. Turkey's economy will never jumpstart with Erdoğan in power, as his disastrous economic policies have devalued the currency and squandered foreign exchange reserves. Raising interest rates could tackle inflation, but it's unclear if Erdoğan has the tools and willpower to weather the economic storm and turn around the crisis-ridden country.

Predictions