Turkish Lira Update

Date: 21st December 2021 Category: Latest News
Turkish Lira Update

In the last couple of months, we have seen the Lira trading at a huge low to the USD, and now it has made the mother of all come backs! On Monday the 20th of December, we saw the Lira trading as high as 12.77. This is due to the announcement of President Erdogan’s plans to support the Lira and it’s deposits should it loose value against FX rates at more than the banks’ interest rates. Before the recent announcement of this policy by the Turkish President, The Lira had lost almost 60% of its value against the USD – an alternative currency which many Turks have been using in light of their national currency.

The Turkish Central Bank has also cut interest rates by 5% since September, increasing inflation further to over 21%. President Erdogan has promised to keep pushing for lower interest rates which he insists will fight inflation, a view that goes against the mainstream economic theory that this would raise inflation with lower borrowing rates and would devalue a currency.

The recent low Turkish Lira drove essential prices higher which had put even more pressure on the Turkish Government to act. In recent news the Turkish minimum wage has been set to be increased and has already increased by around 25%, with targets of 50% in the new year. This will combat low income and vulnerable people which will help Turks afford a better quality of life, however given the previously rising prices, was a well needed move. Now with the New FX rate in mind, Turks should be far better off (in theory), but time will tell as we progress through the new year and see if the President’s plan will truly pay off or “Pay Out” for the people of Turkey.

Other Key points to note for Lira FX:

  • The Lira is still down by 40% against the USD YTD
  • falling 11% in that day to finishing more than 20% higher after the announcement of new policy measures to protect the Lira
  • Erdogan also said that the Government would boost its match on Contributions to private pensions from 25% to 30%, and introduced measures to help shield exporters from the exchange rate volatility.
  • The Lira only gained back what it had lost over the last few weeks.
  • The policies and measures don’t appear to address the fundamental issues that have led to high inflation and currency devaluation in the first instance
  • Biggest Lira rally in 38 years