Trusted by the market Turkish pound less than even the ruble and certainly less than any other emerging market currency. Cause, his unorthodox economic and monetary policy Turkish Presidentwhich has been undermining the exchange rate of a neighboring country for many years, fueling soaring inflation and forcing investors to flee en masse from Turkish securities.

This picture is being achieved by hedge against further weakening of the Turkish lira, which soared to a four-month high ahead of the Turkish elections and the highest among emerging market currencies. In short, it displaced the ruble from the worst position among the currencies of the same category, which the ruble held until recently.

Speaking to Bloomberg, Christian Maggio, head of portfolio investment at TD Securities in London, attributed the market’s attitude to “an assessment that the image” of the Turkish currency and economy is deteriorating. As he emphasizes, “as the election approaches, there is a risk that the central bank will cut interest rates again, and this is putting pressure on market expectations and is starting to show up now.” He explains, of course, that in the event of such a move by the Bank of Turkey, the Turkish lira will receive a new blow and be led to a new retreat. Over the past almost two years in Bank of Turkey under Sahap Kavcioglu, there was an unprecedented series of interest rate cuts on the lira, which led to a permanent decline in the Turkish currency. In fact, during the past year, as central banks of economies large and small rushed to aggressively raise borrowing costs to stem alarmingly high inflation, the Bank of Turkey again cut them four times. Thus, Mr. Kavtsioglu received in the spring of 2021 the interest rates of the pound sterling at the level of 19%, to which his predecessor raised them and now reached 9%.

The reason is Erdogan’s unorthodox economic and monetary policy, which has been undermining the currency of a neighboring country for years.

The impact of this policy on the Turkish currency is devastating. When Sahap Kavcioglu took office at the end of March 2021 and before he started cutting interest rates, the Turkish lira was worth about 8 pounds per dollar. Today, its rate has fallen to 18.8 Turkish liras per dollar, although in recent months it has shown extraordinary stabilization. This is due to a series of unorthodox and pernicious policies by the Erdogan government, such as the obligation it imposes on export companies, but even on the country’s banks, to keep some of their reserves in Turkish lira. It is also related to the maneuvers of the central bank, including its usual interventions in the foreign exchange market. This was his constant tactic for many years, which cost him hundreds of billions of dollars, which led to the depletion of his foreign exchange reserves. In addition to the upcoming elections, which have been rescheduled to May instead of June, market worries about the Turkish lira were also underpinned by a statement by the Turkish finance minister over the weekend that Turkey needs “an exchange rate at an ideal level, not too weak.” , but also not too strong, so as not to encourage imports and not interfere with domestic producers.

As for the impact on inflation, it was below 20% two years ago, but has moved closer to 90% in 2022, only to slow down to around 64% at the end of last year. However, economic and political analysts fear that the downward trend in prices will soon end as the government prepares for a sharp increase in spending in the pre-election period. Last month, Turkey’s president promised millions of workers that they could take early retirement. The measure is expected to cost the Turkish Ministry of Finance about $13 billion a year. The government also announced a 55% increase in the official minimum wage as it prepares to pump $3.3 billion into state-owned banks to speed up lending to businesses to support them in the face of rising production costs.