Is Turkey’s Currency About to Collapse?
Turkey’s central bank has announced tighter regulations on credit card spending and efforts to boost demand for the local currency in a move to stabilize the struggling lira. The new measures come just weeks before crucial local elections at the end of March.
According to an overnight notice in the Official Gazette, the central bank has raised the maximum monthly interest rates charged on cash advances from credit cards and overdraft accounts. Separately, the state-run Anadolu Agency reported that the bank has increased monthly targets for lenders to increase the proportion of lira deposits.
The moves aim to curb the recent volatility in the lira’s value ahead of the elections in two weeks. While policymakers view the heightened demand for US dollars as temporary, expecting it to subside after the vote, the lira has emerged as the worst-performing emerging market currency this month, losing around 2.8% against the dollar.
Pressure is also mounting on the central bank to raise its key benchmark interest rate after February inflation data accelerated more than analysts anticipated. The bank forecasts inflation will peak above 70% in the coming months before declining to 36% by year-end.
Having completed an eight-month monetary tightening cycle that lifted rates to 45%, the central bank is opting for these alternative measures to keep inflation in check, sometimes announcing new rules at midnight.
However, this unorthodox approach has drawn criticism from economists and bankers who argue the methods resemble policies from the previous administration that disrupted monetary policy transmission.
Despite earlier predictions of leaving rates unchanged, major banks like Goldman Sachs and Deutsche Bank now anticipate a rate hike at next week’s policy meeting, citing rising pressure on reserves and the lira’s depreciation. The central bank has stated it will tighten its monetary policy stance if a significant deterioration in the inflation outlook is anticipated.
In an op-ed for American Enterprise Institute, Middle East forum observer Michael Rubin asks a troubling question: How far can the Turkish lira fall before President Recep Tayyip Erdogan starts a war?
“Dictators often embrace irredentism to distract from poor economic stewardship,” Rubin wrote, noting that with the lira in a continuous “slow, steady slide to nothingness,” and as the world remains distracted by the war in Gaza, Erdogan embraces irredentism “not as a rhetorical tool, but as a military one. Simply put, Erdogan needs war.”
Turkey earlier this tear launched airstrikes in northern Syria to target Kurdish regions and cement control over occupied areas. Erdogan has also expanded Turkey’s occupation of northern Cyprus and challenged Greek sovereignty over the Aegean islands. Now, Rubin warns, Erdogan is signaling plans to occupy Gara Mountain in Iraq, ostensibly to create a transit corridor from the Persian Gulf to Europe, but also as an operation against the Kurdistan Workers’ Party (PKK).
“For anyone to validate such reasoning is to greenlight war, not only in Iraqi Kurdistan but also in Armenia where Turks make similar demands for a corridor,” he writes. The operation in Gara may prove disastrous for Erdogan, likened to major military failures such as Waterloo, Khorramshahr, or Donetsk.
“Much like Galtieri, Saddam, and Putin, Erdogan now directs his country into the abyss rather than admit his own financial incompetence.”
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