It's not really anything new over the last several months - in fact it seems to be down a little from the peak - but it's a huge increase above the historical average of about 2ish. Most of that increase is just over the last couple of years.
Due to excessive foreign exchange liabilities because of its high foreign investment, Turkey basically has no ability to defend its currency against the rate increases the US and EU - two of its most important trading partners - have used to defend theirs. Its prime rate is at 50%, which is already insane. Raising interest rates more will only exacerbate the structural problem. In broad terms, developed countries have been exporting their inflation to emerging markets by raising rates, which has the effect of pulling their own currencies back into the domestic market; foreign currency denominated debts (dollar denominated debts being the most significant in most of the world) in emerging markets still need to be serviced with those currencies which are now more difficult to come by, so the price of foreign currency in the local currency, the exchange rate, increases. Turkey, like most emerging markets, has a huge amount of foreign currency denominated debt, mostly in dollars - a net position of something like nearly $100 billion over its foreign exchange reserves.
Well, Turkish corporations with dollar-denominated debts have no choice but to buy dollars with lira to service those debts, at pretty much whatever price they have to, so the exchange rate gets worse. They also have a negative balance of payments - Turkey imports more in real terms than it exports, which exacerbates the problem - the only reason to hold lira, after all, is to buy something in Turkey; they don't use them anywhere else. So Turkish exporters, who buy in lira in Turkey and sell in foreign currencies elsewhere, are the natural counterparty for both Turkish importers and anyone else trying to exchange lira for dollars (like those debtors).
As long as Turkey needs more foreign currency to cover its costs than others need lira, that exchange rate naturally ratchets up. Historically, though, that has been counteracted by worldwide low interest rate policy, especially in the US, so foreign currencies like dollars keep being printed and pushed out into the world fast enough to keep countries like Turkey in the money... but we stopped doing that in 2022. So on net, to keep covering those costs in foreign currency for both imports and debt service, Turkish corporations have to sell more and more of Turkey's real wealth out of the country, strangling its economic growth.
There are drastic policies the Turkish government could take to prevent this, but I wouldn't hold my breath - and nothing can prevent Turks from taking a quality of life haircut on average due to the cost of imported goods, on which they continue to rely. It's only a question of how much.
Reading the tea leaves a bit more deeply, though, I think this could lead to a rapprochement between Turkey and Russia... if Turkey can negotiate a low price for Russian fuels, which are a large proportion of its import needs, it would go a long way to seriously turning around its problems. The geopolitical implications, though, are, uh... considerable.
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Topic: TURKISH ELECTIONS ARE... Over. All is lost. (TurkePol Thread?) (Read 21280 times)