Currency interventions under Erdoğan administration and the State of Turkey's Economy

Under President Recep Tayyip Erdoğan's administration, Turkey's economy has experienced significant currency interventions. The lira has been subject to multiple devaluations, with the exchange rate plummeting from 1.55 lira per dollar in 2002 to 13.4 lira per dollar in 2021.

The Turkish Central Bank has implemented various measures to stabilize the currency, including raising interest rates and selling foreign currency reserves. However, these efforts have often been short-lived, and the lira has continued to depreciate.

Turkey's economy has been heavily reliant on foreign capital inflows, which have helped to finance large current account deficits. However, this reliance has also made the economy vulnerable to shifts in global investor sentiment.

The Turkish government has also implemented policies aimed at reducing the country's reliance on foreign capital, such as increasing domestic savings and reducing imports. However, these efforts have been slow to take hold, and the economy remains vulnerable to external shocks.

Turkey's economic situation is a cause for concern, with the lira losing 45 percent of its value against the US dollar this year.

The lira has been weakening rapidly, touching a record 14 on Tuesday and edging near to its record low.

High inflation is a major contributor to the lira's decline, with annual inflation jumping to a three-year high of 21.31 percent in November.

Fitch, a ratings agency, has revised Turkey's outlook to "negative" from "stable" due to the risks created by recent interest rate cuts.

The central bank has intervened twice this week to sell dollars and prop up the lira, but the impact of these interventions may be limited.

The central bank's foreign exchange reserves are depleted, making it difficult to defend the currency.

Economists have widely criticized President Erdogan's aggressive rate-cutting policy as reckless, warning that it cannot properly defend the currency.

Discover more: Gold Climbs toward Record High Ahead of Us Inflation Data.

The Turkish government under Erdoğan's administration has taken steps to address the currency fluctuations.

In August, the Turkish Central Bank raised its one-week repo rate by 625 base points, from 17.75 percent to 24 percent.

Erdogan described the surge in USD/TRY rate as an "evidence of an attempted economic assassination".

The president underlined the Central Bank's independence, stating "Now, we will see the results of [the bank's] independence."

Suggestion: Financial Independence

The public perception of the currency interventions under Erdoğan's administration was largely negative.

Many people felt misled by the government's claims that the currency depreciation was a deliberate move to boost exports.

The opposition party's slogan "What happened to the $128bn?" resonated with the public, highlighting the perceived loss of value.

The leader of the main opposition party, Kemal Kılıçdaroğlu, accused the president of committing a fraud and vowed to hold him responsible.

The government's argument that the currency depreciation would encourage growth was met with skepticism, especially given the fact that the Central Bank of the Republic of Turkey (CBRT) sold billions of dollars to bolster the lira, contradicting the government's claim.

The disastrous currency intervention had severe consequences for Turkey's economy. The government's actions led to a sharp increase in inflation.

In June 2023, the government reversed its currency policy, and the Central Bank of the Republic of Turkey (CBRT) started to raise policy rates. The CBRT's decision was a significant shift from its previous stance.

The effects of the currency intervention were exacerbated by the coronavirus pandemic, which caused inflation to soar to 80% according to official figures. This was a staggering increase that had a profound impact on the Turkish economy.

As of July 2023, it is speculated that the CBRT continued to sell foreign currency, albeit at smaller amounts, following the reversal of the government's currency policy.

Additional reading: Intergroup Intervention