Turkish Lira Hits a New Low

The Turkish lira continues to break negative records and today reached the mark of 26.10 against the dollar.

A few days ago, Hafize Gaye Erkan raised the interest rate from 8.50% to 15% over just a few hours. This is an expected tightening of monetary policy, which is likely to further intensify in the coming months, but was probably not as strong as markets expected.

In Turkey, inflation is now at 40%, after hitting the 85%-mark last autumn. The main reason for this situation was the Central Bank that continued to cut interest rates (pressured by Erdogan), despite the fact that the inflationary spiral had already started and the currency was depreciating.

Clearly, a weak exchange rate further complicates Erkan’s primary goal of containing inflation.