Why Turkey's Economy Is Collapsing?

The lira lost nearly 30 percent of its value against the United States dollar in November. But why? How? What's next? Well, we are going to look deeper into it and see what is exactly happening.





Turkey's lira crash

After the last Turkey's currency crisis they had in 2018, Turkey's currency lira is falling again and this time it's serious. According to people and experts President Recep Tayyip Erdogan didn't handle the economy as he should. On the contrary, Erdogan has blamed the lira’s troubles on foreigners and their supporters in Turkey.

How did the lira lose so much of its value? The lira’s recent troubles were triggered after Turkey’s central bank cut interest rates by a full percentage point on November 18 – the third cut since September – and signaled it would slash rates again in December. But what have interest rates have to do with the currency's value? When a central bank lowers interest rates, money generally becomes less expensive to borrow and therefore less valuable relative to other currencies. 


Erdogan

Turkey's President said that foreigners try to sabotage Turkey's economy as well as their supporters within the country. In a speech on November 22, he declared an "economic war of independence" which he vowed Turkey would win.

After the speech, things didn't go as he believed. In currency markets at least, it triggered a free fall in the lira, which briefly touched what was then an all-time low of 13.45 to $1.


Is the worst of this lira crisis over?

That’s tough to say. With elections scheduled for 2023, Erdogan has pledged to keep pushing for lower borrowing costs. So far, he’s showing no signs of reversing his “unconventional” thinking on interest rates, or any greater tolerance of central bankers who disagree with his views.

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