The Turkish lira fell to 25.74 per dollar just under a day after the central bank hiked interest rates for the first time since 2021. Although the rate hike decision was widely anticipated, the increase still fell short of the 21% that some analysts had predicted.
Turkish Lira Down 21% Since the Start of 2023
The exchange rate of the Turkish currency — the lira — versus the greenback fell to a record low of 25.74 per dollar a day after the central bank hiked interest rates by 650 basis points to 15% on June 22. The currency’s latest fall means the lira has now depreciated by just over 27% during the first half of 2023.
While the central bank was widely expected to abandon the recently re-elected President Tayyip Erdogan’s unconventional policies, a Reuters report said the hike had fallen short of analysts’ prediction of 21%. According to the report, some analysts believe a higher rate hike would have signaled the that Turkish government is about combating inflation.
As recently reported by Bitcoin.com News, the lira’s fall in recent years and the subsequent price increases have forced many Turks to seek refuge in digital assets such as the stablecoin tether. Others have turned to gold and the greenback which is now in short supply. While Tayyip is reported to have initially resisted calls to end his unorthodox monetary policies, the country’s deteriorating economic situation is thought to have forced the Turkish leader’s hand.
However, before increasing the interest rates to 15%, the central bank now led by the recently appointed governor Hafize Gaye Erkan, said the rate hikes would be gradual. The same sentiments were reportedly expressed by the new Turkish Finance Minister Mehmet Simsek.
The End of ‘Erdoğanomics’
Meanwhile, the Wall Street giant Goldman Sachs suggested in a recent note that the central bank may have already started the phased adjustment of rates with the 6.5% hike.
“The transition appears to be more gradual than we had thought,” the financial services giant reportedly said.
According to the Reuters report, Turkey, whose inflation rate has continued to soar, kept interest rates pegged at 8.5% since 2021. Although the policy was widely criticized, President repeatedly defended the decision and vowed to keep the rates low as long as he was in power. However, just a few weeks after winning the elections, President Tayyip approved the policy U-turn that one report characterized as “the end of Erdoğanomics.”
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