Turkish lira regains worst currency title of 2021

Turkey lives immersed in an economic devaluation crisis of the currency and inflation runaway to which, for the moment, the end seems to be unseen.

The Turkish lira, which depreciated 20% against the dollar in 2021, is set for its ninth consecutive annual decline on 2022, regaining its title as the worst-performing emerging-market currency of 2021.

As monetary authorities prepare to tighten policy, Turkey Central Bank Governor Sahap Kavcioglu has signaled more interest-rate cuts to come, driven by Erdogan’s unorthodox assertion that it is high rates that are stoking inflation.

While governments everywhere look to curb surging prices as the global economy recovers from the pandemic, Turkey's Erdogan is betting that lower rates will turbo-boost growth and revive his flagging popularity ahead of 2023 elections.

Overall poverty in Turkey reached its highest level in nearly a decade last year, with the Covid-19 pandemic pushing 1.6 million people below the World Bank’s threshold of $5.5 per person, per day, as wages failed to keep up with rising prices.

Hacer Foggo, founder of the Deep Poverty Network, an organization that helps low-income people, said poverty had worsened at an alarming rate, with a growing number of households failing to meet basic needs such as food and housing.

With the currency plummeting and inflation runaway, the Turks are bracing for an expected difficult winter. 82% of citizens say they will have difficulties heating their homes, and 80% blame government policies.

Driving credit-fueled growth the year before an election has worked for Erdogan in the past but the accumulating impact of that policy over the years, plus the damage wrought by Covid, means the potential social costs are much bigger this time.