Confusion in Turkey… Inflation “frightens” shoppers, and queues portend a crisis

The Turkish lira reached its lowest price against the dollar, at a value of 13.47, exceeding its lowest level last week, following statements by Turkish President Recep Tayyip Erdogan, in which he said that he “will not give up on reducing the interest rate.”

Turks were seen queues outside bread stores and gas stations, while farmers were also lining up in default of loans, and Istanbul sometimes witnessed sporadic demonstrations in the streets.

newspaper says The New York Times “The signs of economic distress in Turkey are very clear as the lira continues its stunning slide.”

The Turkish lira went through its worst period, as its value fell from about 8.5 against the dollar in late August to more than 13 lira to the dollar in just three months.

Sporadic protests erupted across Turkey and opposition parties called for a series of rallies to demand a change of government after the lira collapsed sharply last week.

The currency has lost more than 45 percent of its value this year, and nearly 20 percent of its value last week. Economists link the currency’s decline to President Erdogan’s direct intervention in monetary policy and his determination to lower interest rates.

The recent collapse in the currency came after Erdogan delivered a speech last week in which he reiterated his determination to keep interest rates low as a way to boost economic growth.

He reiterated his opposition to raising interest rates again in statements to reporters on board his plane upon his return from a visit to Turkmenistan, Monday.

“I have never advocated raising interest rates, I do not advocate them now, and I will never defend them,” he told reporters. “I will never compromise on this issue,” he told reporters.

Erdogan has fired three central bank chiefs for disagreeing with his belief that interest rates should not be raised.

Economists and former country officials have publicly appealed to the president to change course, as it is somewhat unacceptable that he actually has authority over the monetary policy decisions of the central bank rather than the bank being independent.

But Erdogan has long believed that higher interest rates are causing inflation, rather than lowering it.

“Interest rates are the cause, inflation is the result, my argument has not changed, I still defend it, I believe in it.”

network quotes CNBC The US News quoted analysts at London-based Capital Economics that the lira “is now in a crisis zone,” adding that “rising inflation and tightening domestic financial conditions are likely to drain Turkey’s recovery.”

“Turkey posted positive GDP growth numbers this week, but the pain of a weak currency outweighs that positive news,” Tim Ash, chief emerging markets strategist at BlueBay Asset Management, told the network.

“Lower rates could result in higher real GDP growth, but on a weaker currency rate, higher inflation and longer-term concerns about macrofinancial stability,” Ash wrote in a note on Tuesday.

Turkey’s GDP growth was an impressive 7.4 percent expansion in the third quarter over the year and 2.7 percent expansion from the previous quarter, driven by household and government consumption and exports.

But the currency crisis and rising inflation mean that these numbers are far from the full picture.

tense political reality

Dozens of people were detained for joining street protests, and police arrested 70 people in several districts of Istanbul last Wednesday during protests against the government’s management of the economy.

The TUC issued a blunt statement saying, “That’s enough, there’s nothing else. We want to make ends meet. Unemployment, rising living costs, rising prices, bills breaking our backs.”

The New York Times quoted Turks complaining about the low purchasing value of the lira.

“Our money has no value anymore,” an elderly retired woman told the newspaper.

The newspaper said that “inflation scares local shoppers and prompts producers to hoard goods, causing business to stop in the country.”

Opposition parties renewed their call for the government to resign and for Erdogan and Parliament to hold early elections.

But this call does not seem easy to achieve, as the opposition does not have enough parliamentary seats, and the escalation of the situation may lead Erdogan to declare a state of emergency.

The newspaper quoted Turkish politicians as saying that “Erdogan, who is slipping in the opinion polls, will not call for early elections in these circumstances.”

The Turkish president stepped up pressure on his opponents by detaining Metin Gürkan, a military and political analyst and a prominent member of a fledgling opposition party, on espionage charges.

restart the economy

Erdogan has promised that low interest rates will help restart the economy within three to six months, but economists have said they have little confidence in his policies at this point.

“I don’t think he’s going to get the nation’s trust anymore,” Attila Yesilada, investment analyst at Vig Lopal Source Partners, told the New York Times.

The crisis has prompted some Erdogan supporters, such as writer Abdulkadir Selvi, of the Turkish daily Hurriyet, to say he does not agree with Erdogan’s economic policy.

“We cannot ignore what is happening today,” Selvi warned. “We must remain strong, but we must not lose sight of the fact that widespread economic turmoil has broad political consequences.”

The analyst said shortages are emerging, including in imported medicines and medical equipment, and even in bakeries.

He said that a loaf of bread is still sold for 2.5 liras, or about 20 cents, but bakeries complain that the costs of a loaf are closer to 4 liras per loaf.

“Soon they will close the bakeries and then we will have a riot for bread,” he said.

There is no life without economy

High prices are forcing young Turks to give up their leisure activities, exacerbating their anger.

“We were able to go for tea with our friends in a cafe somewhere, but now a cup of tea costs 7 liras, so we don’t go,” some of them told the newspaper.

“Our social life has stopped, and now it’s as if we are just living to survive,” one of them added.

Some Turks have expressed concern about their ability to afford basic commodities such as oil, sugar and flour.

The newspaper said that many young people are leaving the country to work in low-level jobs such as cleaners and waiters abroad.