Categories
News
Date
2024-10-25
Currency Depreciation 30%, Inflation at 65%
For most countries, there is no doubt that methods to face inflation include the central bank's interest rate hikes. At the same time, if the domestic currency depreciates, the common response also includes interest rate hikes. However, there is a country facing a significant devaluation of its exchange rate and high inflation, which not only does not raise interest rates but has actually lowered them by a total of 500 basis points within a year. Is this central bank cooperating with the United States to harvest its own wealth?
01. High Inflation
Last year, Turkey caused a sensation in the world economic news. Good news travels slowly, while bad news travels fast, and Turkey has been at the center of public opinion for quite some time. As the global economy entered a recession last year, Turkey also faced an economic crisis. However, the dilemma faced by Turkey is not only from external factors but also from internal ones, which is the strange economics practiced by the central bank.
Throughout the year, Turkey's inflation was very severe, and the latest figures show that the CPI in December reached as high as 64.27%. However, the country's central bank firmly believes that the main method to solve inflation is to increase the money supply. Therefore, the Central Bank of Turkey has continued to lower interest rates, with four consecutive cuts from August to November, totaling 500 basis points.The Turkish President also has his own unique insights on this matter.
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Generally speaking, when a country encounters an economic crisis, it would typically raise interest rates to alleviate pressure, but the Turkish leader has chosen to do the opposite.
The continuous reduction of interest rates and the ongoing printing of money are puzzling, but he has his own explanation—believing that printing money can lead Turkey out of the gloom.
Although the country's inflation remains as high as 65%, Turkey firmly believes that inflation is currently under control.
They predict that inflation will gradually slow down to 40% in the coming months.
And the inflation rate for the entire year of 2023 is expected to drop to 20%, which, if compared to 2022, does show a significant decline.
02, The economy is actually growing
On the other hand, some of Turkey's economic data does support their capricious behavior.
In 2022, Turkey's exports set a historical record, reaching 254.2 billion US dollars, with a significant year-on-year increase of 12.9%.
Preliminary accounting data indicates that Turkey's GDP growth rate for 2022 exceeded 5%, which is an eye-catching high growth rate in Europe and around the world.However, Turkey's export growth is largely based on the significant devaluation of the Turkish lira.
Throughout 2022, the Turkish lira continued to depreciate against the US dollar. At the beginning of 2022, the exchange rate was 0.0749 liras per US dollar, but it has now depreciated to 0.0527.
The depreciation has reached 30%.
If we also consider that it fell by 44% in 2021, we can fully understand that Turkey is exchanging a continuously falling exchange rate for increased exports.
03, Crisis-ridden
Therefore, in the current world situation, hoping to save Turkey from the water and fire is nothing more than a pipe dream.
This is also greatly related to Turkey's long-term dependence on imports to make up for resource shortages.
In the current world market environment, long-term dependence on imports and payment in US dollars is fatal for Turkey.
The cost of converting to US dollars due to depreciation is increasing.
Turkey is not only facing domestic inflation but also owes a huge amount of US dollar debt. Continuous imports are continuously consuming foreign exchange. Considering that the Federal Reserve is still raising interest rates, this is like adding fuel to the fire for the Turkish economy. This is equivalent to Turkey now borrowing a usurious loan.In Turkey, countless businesses are going bankrupt one after another, or are on the brink of bankruptcy.
The叠加 of various crises has actually made the Turkish economy totter.
It is really hard for external economists to understand whether Turkey's continuous interest rate cuts are really for the sake of being harvested by the United States.