For more than a year, Turkey’s banks have spent billions of dollars and other foreign currencies to buy lira and shore up the value of its weakening currency.

However, that strategy seems to have run out of power as the lira continues to lose value, The Wall Street Journal reported.

On 13 June, the lira sank to just under 17.4 to the dollar, its lowest value in months, driven down by global inflation, rising interest rates, and its proximity to the Ukraine war, the WSJ said.

The lira has shed 20 percent of its value this year alone.

Turkey’s May inflation rate was clocked at 73.5 percent, according to the government’s statistics agency, the worst rate among G20 countries and the sixth-highest in the world, behind war-ravaged Syria and Venezuela, which is adrift amid a continuing political crisis.

Turkey imports most of its fossil fuels, prices for which have more than doubled in the past 12 months.

However, the worst of Turkey’s woes are self-inflicted, largely by president Recep Erdogan, who has insisted that low interest rates cure inflation.

He also holds the notion that because a near-worthless lira makes Turkey’s exports cheaper, it will lead to an economic boom and restore economic vitality, a scenario that, after years of effort, shows no signs of coming to pass.

Erdogan has fired a series of central bank governors who have acted against his bizarre economic theory, as we have detailed in past articles, including:

Turkey has imposed several stopgap measures to halt the lira’s collapse, including the government’s guarantee to make up any drop in the value of savings accounts kept in lira and a new savings plan, which we detailed in “Turkey’s Bonds Downgraded. Worse to Come” (15 Feb 2022). 

Now Turkey is teasing a new savings plan that Erdogan says will reinflate the lira. (See “Turkey Adopts New Measure to Rescue the Lira” in this issue.)

“These are measures that buy time, not that solve economic problems,” economist Erik Meyerson at Swedish bank Handelsbanken told the WSJ.

Still, last week Erdogan launched another verbal assault on the conventional economic idea that inflation can be controlled by raising interest rates.

Turkey has “wasted years” in the past by adhering to the policy, which has benefited only “those living a charmed existence and filling their pockets with [profits from] higher interest rates,” he declared.

“This government will not raise rates,” he vowed. “On the contrary, we will continue to cut rates.”

Turkey’s central bank has maintained a base interest rate of 14 percent for more than five months, rendering returns on lira-based investments at negative 59.4 percent.

TREND FORECAST: Ahead of next June’s presidential election, Erdogan is increasingly desperate to rescue his popularity, which is sinking as fast as the lira.

He and his bankers will craft new short-term measures that will loot the central bank’s reserves to put crutches under the lira.

As he becomes more desperate, domestic protests will increase. This will give Erdogan a pretext to find “terrorists” and “foreign troublemakers” among his critics, cracking down even more on personal freedoms and increasing the chances of a rigged election in his favor next year.

Ultimately, Erdogan may seek to distract his nation with military action. As Gerald Celente often says, “When all else fails, they take you to war.”

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