Turkey is having a hard time preserving lira. Early this year, lira lost 4% of its dollar value. The government is trying so hard to save the life of lira by introducing a policy of exchange rate. Central bank and government may attempt to stabilize the lira, but it somehow turns into a more complicated intervention.
The lira could somehow show the sign of recovery but the surge of inflation happening last year makes this currency keep struggling. In January this year, inflation skyrocketed to 48.7%. The increased price of energy and rumors about government’s transparency on inflation data lead to massive protests in some states in Turkey. The opposition party even announced that they will refuse to pay the electricity bill until Recep Tayyip Erdogan, The President of Turkey, turns the fate of prices rate upside down.
But for Turks, stabilizing the exchange rate is not enough to tackle inflation. This is because the minimum wage has doubled, following the increase of prices. The worse problem is keeping interest rates low. The central bank cut 14% more from 35% points below the rate of inflation. Turks are in a dilemma whether it is wise to put their deposit in the bank when the currency is so much lower than inflation. So, some Turks decided to buy properties to improve price growth.
Although interest rate raises two digits in Brazil which is now also struggling from inflation, Mr. Erdogan however cut the interest rate. But, Turkey is not yet in the state of hyperinflation. Turks hope to see some lower demand, said Gizem Oztok Altinsac, chief economist at Tusaid. They work hard to control inflation not to reach three digits. But today’s structural issues, central bank trust issues emerge, and poor policy management, lowering inflation would take time.
