Is Turkey heading for an economic crisis?

[Last Monetarist]

https://www.reuters.com/markets/currencies/turkish-lira-charges-back-after-erdogans-anti-dollarization-plan-2021-12-21/

Turkey's lira rocketed back from record lows in volatile trading on Tuesday after Turkish President Tayyip Erdogan proposed measures to protect local currency savings against such swings.

Erdogan introduced a series of steps late on Monday that he said will ease the burden of a weakened currency on Turks and encourage them to hold lira rather than dollars.

Under Erdogan's plan, his government promised to guarantee deposits in lira, sending the currency soaring some 25%, its biggest intra-day rally on record, at one point on Monday.

The Turkish currency, which has lost 44% of its value against the greenback this year, initially strengthened on Tuesday to a daily high of 11.0935 versus the dollar, later weakening to 14.3885 before swinging back to 12.6 at 1018 GMT.

The government has pledged to pay the difference between the value of savings in lira and equivalent dollar deposits.

More than half of locals' savings is in foreign currencies and gold, according to central bank data, due to a loss of confidence in the lira after years of depreciation.

The lira has plunged to record lows this year over fears of an inflationary spiral brought on by Erdogan's push for monetary easing. At its low, it was down some 60% on the year.

Alpaslan Cakar, head of the Turkish Banks Association (TBB), said the Treasury would meet the costs of the measures, which could prove an expensive and inflationary initiative.

Some $1 billion was sold in markets after the announcement, Cakar said. Calculations by three bankers estimated around $1-1.5 billion in savings were converted to lira.

A source with knowledge on the matter said the measures were decided after the exchange rate hit "problematic" levels, adding the government would manage the coming period carefully.

"The dollar and euro had risen up to the point of forming a bubble really. This needed to be intervened in. This situation was not sustainable," the person said, requesting anonymity.

Finance Minister Nurettin Nebati said details of the new economic scheme would be announced at 1100 GMT.

Turkey's five-year credit default swaps , the cost of insuring against sovereign default, jumped to 613 bps, the highest since May 2020, according to IHS Markit.

Meanwhile, one month implied volatility in the Turkish lira jumped to 63%, its highest on record.

Presidential adviser Cemil Ertem told Reuters the moves had removed the need for individual investors' dollar demand, adding it was "a very important paradigm shift" for Turkey's economy.

A senior banker said infrastructure and regulation would have to be introduced before the deposit guarantee measure could be implemented, adding it was not clear how the extra money given by the government to the deposit holder would be taxed.

While the government called the lira's rebound on Monday a major win on policy, economists have said Erdogan's economic programme based on low interest rates is reckless and expect inflation, currently above 21%, to blow through 30% next year.

Turkey's EPDK energy regulator said, after the lira's rally, it had halted planned price hikes for now. Turkey's main BIST 100 stock index was down 6.12% on Tuesday, triggering indexwide circuit breakers that halt trading temporarily.

Under pressure from Erdogan, the central bank has cut rates by 500 basis points since September. The president has pledged to continue with his low-rates policy, including on Monday.

Some economists have said the new measures are effectively veiled rate hikes that may not ultimately stem the selling pressure on the lira, while putting a strain on the Treasury.

"It can have dangerous consequences," said Refet Gurkaynak, head of Bilkent University's economics department, in Ankara.

Jeffrey Halley, senior market analyst, Asia Pacific, OANDA, said it remained unclear how the government would carry out the new measures "especially in a short time".

 

[Last Monetarist]

https://www.reuters.com/markets/currencies/erdogan-may-cash-economy-steps-with-early-election-analysts-say-2021-12-29/

Turkey's President Tayyip Erdogan has effectively opened the door to early elections, political analysts said, after two big recent announcements - a 50% rise in the minimum wage and a deposit-protection scheme that arrested a currency crash.

The announcements came within five days of each other as a grinding currency crisis hit a peak on Dec. 20 when the lira tanked to a record low of 18.4 to the dollar, deeply rattling the economy and households.

Erdogan and senior officials from his ruling AK Party (AKP) have repeatedly dismissed the idea of presidential and parliamentary elections being held before schedule in mid-2023.

But the 2022 wage relief and the sharp turnaround in the lira - rallying to 12 per dollar - suggest Erdogan may want to act soon, after a long slide in his opinion poll ratings.

Analysts said his announcements echo past pre-election gambits to prove his leadership credentials. A snap poll could wrongfoot the opposition coalition, which has not yet agreed on a presidential candidate.

"The decisions have ... given the impression that the AK Party and Erdogan are excellent managers of the economy," said Mehmet Ali Kulat, chairman of MAK Consulting.

"For Erdogan, a 'last minute' success story emerges before every election," he said. "We see that this process will be presented as a political leader who beat the dollar and disrupted the game of foreign powers."

However, the message's effectiveness will depend on the direction of the lira and inflation, and their impact on Turks who have seen their spending power slashed.

To boost the lira, Erdogan announced a scheme in which the state protects converted lira deposits against future depreciation losses versus hard currencies.

With the help of state-backed market interventions, the move halted a currency slide brought on by Erdogan's own unorthodox policy of slashing interest rates despite inflation seen hitting 30% this month.

Yet the scheme risks further driving up prices and the fiscal debt in the months ahead, economists say.

Omer Taspinar, a Turkey expert at Brookings and professor at National Defense University, said Erdogan is "already following election politics" by raising citizens' purchasing power.

"To stop the bleeding, he practically indexed the value of bank accounts in domestic currency to the dollar," he said. "These are all aimed at creating positive momentum before he calls early elections."

Years of double-digit inflation and depreciation have eaten into Turks' earnings, lifting Erdogan's disapproval rating to levels last hit in 2015, according to a MetroPoll survey conducted this month.

Other polls show he would lose in a runoff against some likely opposition candidates.

"The election economy is being implemented", said Metropoll Chairman Ozer Sencar, adding that fiscal support could help win over undecided AKP voters.

"The idea that Erdogan 'the chief' can solve this problem will become widespread," he said. "I call the election imminent. Three months later we will see the valuation of money that people get will become meaningless. If Erdogan waits a year for the election, he could lose."

Erdogan has dismissed the idea of early polls, which opposition leaders want so they can reverse his "new economic programme" focused on exports, credit and low rates.

"The election is not on the agenda. It is planned for 2023," an AKP official told Reuters, noting that morale rose in the party and Turkey over the last week. "There will be new steps that will relieve other segments of society."

Another senior AKP official said the long-term effects of the steps would boost its support.

"The panic atmosphere in the country has gone. Now we will calmly continue to take the right steps," the official said.

 

[Last Monetarist]

https://www.reuters.com/markets/europe/turkey-hikes-energy-prices-istanbul-monthly-inflation-highest-decade-2022-01-01/

Inflation soared by the most in at least a decade in Turkey's biggest city Istanbul last month, according to data on Saturday, and President Tayyip Erdogan's government sharply raised nationwide electricity and natural gas prices for the new year.

Prices also jumped for petrol, car insurance and some bridge tolls, adding more strain to an economy facing surging inflation and a currency crisis that was triggered by a series of unorthodox interest rate cuts.

The Energy Market Regulatory Authority, citing high global energy inflation, said electricity prices were raised by as much as 125% for high-demand commercial users and by around 50% for lower-demand households for 2022.

Natural gas prices jumped 25% for residential use and 50% for industrial use in January, national distributor BOTAS said. The price rise was 15% for power generators.

In Istanbul, home to around a fifth of Turkey's population of 84 million, retail prices jumped 9.65% month on month in December for an annual rise of 34.18%, the Istanbul Chamber of Commerce (ITO) said. Home appliance prices were up more than 20% while food rose nearly 15%.

Wholesale prices in the city jumped 11.96% from November for an annual rise of 47.10%, ITO said.

The data and adjustments will probably stoke the country's overall annual inflation rate, which jumped above 21% in November and is seen surpassing 30% in December and heading higher still, largely due to a currency crash.

The lira shed 44% of its value against the dollar last year after a plunge since September, when the central bank, under pressure from Erdogan, began a series of aggressive rate cuts.

Other adjustments included a 20% jump in mandatory vehicle insurance costs for those with the highest deductible.

Petrol prices rose by more than half a lira per litre, while diesel prices increased by 1.29 liras, the Energy, Petroleum, Gas Stations Employers Union (EPGIS) said on Friday.

 

[Last Monetarist]

https://www.reuters.com/markets/stocks/turkish-lira-weakens-inflation-soars-highest-erdogan-era-2022-01-04/

The lira slid as much as 4% against the dollar on Tuesday as Turkey girded for inflation to rise further after touching a 19-year peak, even as President Tayyip Erdogan said the worst of the economic turmoil was left behind.

The currency weakened as far as 13.5 to the dollar and stood at 13.4 by 1239 GMT, off more than 3%.

Economists predicted the lira weakness and a series of administered price rises - including for utilities and wages - would continue lifting inflation this year after data on Monday showed the annual rate surged to 36.1% last month.

Hakan Kara, former chief economist at Turkey's central bank, said overall January inflation should rise by 5 percentage points due to the direct and indirect contributions from the administered price hikes.

The lira logged its worst year in 2021 since Erdogan came to power nearly two decades ago by weakening 44%, by far the worst performer in emerging markets. It hit a record low of 18.4 two weeks ago before rebounding after the government unveiled a deposit-protection scheme.

Erdogan said he would not abandon Turks to "extreme" price hikes and volatile exchange rates. The fluctuating forex rates were "thorns, rocks thrown in front of us," he added.

"We will rescue our country from this image that it does not deserve by removing the bubble over inflation too," Erdogan told members of his ruling AK Party.

"God willing, we have left the worst behind us. From now on, it is time to reap the benefits of our efforts, to show our people that we are approaching our goals."

Erdogan's "new economic programme" of sharp interest rate cuts and an emphasis on exports and credit, despite soaring prices, set off Turkey's second currency crisis in four years.

The lira shed as much as 50% of its value in the last few months alone, sending import and other prices higher.

Kemal Kilicdaroglu, chairman of the main opposition Republican People's Party (CHP), said the government itself had imposed most of the heaviest price hikes, including on electricity and gas.

"Extreme prices have one actor... and that person is Erdogan."

The central bank has cut its policy rate by 500 basis points to 14% since September, under pressure from Erdogan who overhauled the bank's leadership last year.

Many economists call the monetary easing reckless given the inflation is driven primarily by the lira weakness. Prices should continue rising in coming months in part due to a series of administered rises including minimum wage, utilities, road tolls and alcohol and tobacco taxes.

"The December inflation spike was largely driven by the FX passthrough and imported energy costs," said Kara, a Bilkent University professor.

"The authorities may implement some price controls and deploy additional tools to prop up FX depreciation. But it is not clear how these measures will alleviate the demand channel," he said, predicting inflation may exceed 40% by March.

To support the lira, Erdogan - who had said on Monday he was saddened by the inflation data - unveiled a scheme two weeks ago in which the state protects converted local deposits from losses versus hard currencies.

Deposits in the forex-protected scheme had reached 84 billion lira ($6.4 billion), Finance Minister Nureddin Nebati was reported as telling state-owned Anadolu agency on Tuesday.

Once stability is achieved, Nebati said the government would boost production and exports and continue working on ways to draw household gold into the financial system.

Corporate tax will be made more competitive and value-added tax will be simplified among various planned measures, he added.

 

[Last Monetarist]

https://www.reuters.com/world/middle-east/turkeys-erdogan-says-working-steps-boost-lira-interest-media-2022-01-18/

Turkish President Tayyip Erdogan said he was pleased with the lower volatility of the lira and that the government was working on steps to increase interest in the currency, state media reported on Tuesday.

"Slowly, in a gradual way and without haste, the lira will get firmer, interest rates will fall in the same way, and 2022 will be our brightest year," the state-owned Anadolu news agency and other media reported him as telling reporters during his visit to Albania on Monday.

The lira has mostly stabilised this month after plunging 44% against the dollar last year. It was 1.6% weaker at 13.65 against the dollar at 1535 GMT on Tuesday, slightly extending losses after Erdogan's comments.

"We are quite pleased with the lessening volatility in the exchange rate," he said. "Our additional work is continuing on maintaining stability in financial markets and boosting interest in the lira."

"I take the view that interest rates are the cause and inflation the result. This result indeed is showing itself: inflation is on the verge of falling," Erdogan said, repeating his unorthodox view on the link between rates and inflation.

However, annual inflation surged to 36.1% last month, its highest in the 19 years that Erdogan has been in power. Economists see inflation reaching 50% in the first half of the year. read more

The inflation surge has been fuelled by the lira's slide. The currency weakness has in turn been driven by the central bank's move to slash its policy rate by 500 basis points to 14% since September. It will hold its next policy meeting on Thursday and is expected to keep the rate steady.

After the lira slumped to a record low of 18.4 against the dollar on Dec. 20, Erdogan announced a scheme to support the currency by offering lira deposit accounts which would compensate savers for losses caused by further lira weakness.

 

[daytrader]

Turkey's inflation hits 24-year high of 85.5% after rate cuts
Erdogan, who holds sway over the bank's decisions, has called for a single-digit policy rate by year-end


ISTANBUL:
Turkish annual inflation climbed to a new 24-year high of 85.51% in October, official data showed on Thursday, slightly below forecast, after the central bank cut its policy rate despite the surging prices.

Inflation has surged since last November, when the lira slumped after the central bank began cutting its policy rate in an easing cycle long sought by President Tayyip Erdogan, running counter to the global tightening cycle.

In the last three months, the central bank slashed its policy rate by a total of 350 basis points to 10.5%, and promised another cut next month as the final move in the current easing cycle.

Erdogan, who holds sway over the bank's decisions, has called for a single-digit policy rate by year-end.

Month-on-month, consumer prices rose 3.54%, the Turkish Statistical Institute said, below 3.60% forecast in a Reuters poll. Annually, consumer price inflation (TRCPIY=ECI) was forecast to be 85.60%.

The annual inflation in October was the highest since June 1998, when Turkey was working to end a decade of high inflation.

Month-on-month the clothing group led the price rises with 8.34%, followed by food prices, which rose 5.09%, and furnishing and household equipment prices, which rose 4.38%.

Transportation, which includes petrol prices, led the annual rise with 117.15%, followed by food prices at 99.05% and furniture and household equipments at 93.63%.

The median forecast for year-end inflation in the latest Reuters poll was 70.25%, while Turkey's central bank raised its year-end forecast to 65.20% last week, its fourth upward revision this year.

The government's economic programme prioritises low rates to boost production and exports with the aim of achieving a current account surplus.

The domestic producer price index was up 7.83% month-on-month in October for an annual rise of 157.69% (TRPPIY=ECI).

Express Tribune

 

[SalimBhai]

That’s what happens when the calipha. Put his son in law as finance minister ( few years back).

 

[Ahmad-GERMANFC]

It’s in free falls


A few of my high school friends moved back to Turkey in 2014-15 (despite being born in Germany) but 2 of them have moved back to Berlin in last 6 months and the other is also moving back to Germany by end of year.

 

[SalimBhai]

If you look at the stats since uncle calipha took power turkey has been in a free fall. Gender inequality index fallen big time under erdogan. Freedom of press ranking one of the lowest. And now the economy is in a free fall. Most minorities also left years ago due to the Islamist erdogan policies.

 

[Ahmad-GERMANFC]

If you look at the stats since uncle calipha took power turkey has been in a free fall. Gender inequality index fallen big time under erdogan. Freedom of press ranking one of the lowest. And now the economy is in a free fall. Most minorities also left years ago due to the Islamist erdogan policies.

Incorrect. Till 2014-15 they were doing really well

 

[SalimBhai]

Correct. The economy was. Freedom of press , minorities rights , womens rights were not.

 

[Ahmad-GERMANFC]

Correct. The economy was. Freedom of press , minorities rights , womens rights were not.

Womens and minorities right was good too. In fact womens right increased since they were allowed to now wear what they wanted in public instotutions whereas in past that wasn’t case. Honestly even now it’s fine.

Freedom of press was main issue since start and obviously economy in tailspin now

 

[SalimBhai]

Womens and minorities right was good too. In fact womens right increased since they were allowed to now wear what they wanted in public instotutions whereas in past that wasn’t case. Honestly even now it’s fine.

Freedom of press was main issue since start and obviously economy in tailspin now

Gender inequality index has more than one factor to determine the ranking. I think turkey has slipped 55 places since erdogan took over .

 

[Sidilicious]

Gender inequality index has more than one factor to determine the ranking. I think turkey has slipped 55 places since erdogan took over .

Womens and minorities right was good too. In fact womens right increased since they were allowed to now wear what they wanted in public instotutions whereas in past that wasn’t case. Honestly even now it’s fine.

Freedom of press was main issue since start and obviously economy in tailspin now

I remember on my first trip to Istanbul (probably early 2010s), I was in the city centre near the touristy areas and saw two girls walking hand in hand like best friends, one wearing a niqab ?(the head scarf) and obviously looked very religious and the other wearing a mini skirt. That was a beautiful sight. People not judging the other by their religious beliefs and just getting along.

I wonder if it would be possible now.

 

[SalimBhai]

I remember on my first trip to Istanbul (probably early 2010s), I was in the city centre near the touristy areas and saw two girls walking hand in hand like best friends, one wearing a niqab ?(the head scarf) and obviously looked very religious and the other wearing a mini skirt. That was a beautiful sight. People not judging the other by their religious beliefs and just getting along.

I wonder if it would be possible now.

In Istanbul it’s the same I think. Unless you go the super conservative area as faitih