Turkish Central Bank loses $2 billion in reserves
New complications for the Turkish economy. The nation's central bank has lost up to two billion dollars in foreign exchange reserves in the last week, according to a weekly report by the bank published in the digital version of the newspaper Al-Ain. The first consequence of this shortage of foreign currency has been the devaluation of the Turkish lira, which a week ago recorded its weakest level since last May.
The Turkish currency has lost up to 36% of its value in two years, weakening against the dollar and the euro. To alleviate this situation, the Turkish Central Bank has decided to cut interest rates again to 10.75%. "The fall in interest rates, together with the massive sale of emerging markets and concerns about the conflict in Syria, has put a lot of pressure on the currency", explained analysts Laura Pitel, Tommy Stubbington and Anna Gross in statements to the Financial Times.
Turkish President Recep Tayyip Erdogan's aggressive foreign policy is taking a toll on the economy. Despite the government's efforts, such as the reduction of VAT, the freezing of gas and electricity bills and the lowering of interest rates, macroeconomic indicators are worsening week by week. The deployment of forces in Libya and Syria is having a high cost for the Ottoman treasury which is trying to alleviate it by printing more paper money. This weakens the country's monetary credibility and scares off investors from Turkey. Analyst Güldem Atabay already predicted last week to the local newspaper Ahval News that foreign investors will leave the Turkish market en masse. Bloomberg has recorded that total foreign investment in Turkish stocks has fallen to $1.6 billion year-on-year.
Last month the Turkish lira suffered its worst period since September 2018 as a result of the Turkish military incursion into northern Syria. The international community is opposing Turkey's foreign policy in Syria and Libya and this is also affecting international relations with the rest of the world and hence the country's trade relations.
The decline of the Turkish lira against the US dollar has led to an increase in prices and services in the Turkish market and has brought inflation rates to record levels during the last quarter of 2018. In fact, an official report has found that inflation rates have again shot up in Turkey. "Everything has become more expensive. I noticed when I went shopping that I couldn't buy everything I needed. Red meat is the most expensive thing, few people can afford it," explains Seda Dönder, an unemployed 27-year-old from Turkey. "With 50 lire you can't buy a single kilo of meat," says Cumhur Erol, a 40-year-old doctor.
Inflation was 12% last February and rose for the second month in a row. The Turkish Statistics Authority explained in a statement that the increase in the general consumer price index was 0.35% per month last February, 12.37% per year and 1.71% compared to December 2019. "In this economic crisis many businesses have gone bankrupt," explains Cumhur Erol. In addition, the loss of value of the lira has affected companies because it has made imports and production prices more expensive. They also have difficulties in repaying loans taken out in other currencies in better times.