Turks caught between hammer and chisel

Turkey’s lira tumbled again overnight over rising inflation fears, with markets showing little faith in government’s promises that the worst of the country’s economic turmoil is over.

Inflation in the country of 84 million hit a 19-year high of 36.1% for December, the highest in years. And economists warn it could still go up, thanks to the wrong policy of cutting and refusing to raise interest rates, a standard tool used by monetary policymakers to cool down rising costs and strengthen local currencies.

Critics say this plan is unsustainable, will further deplete Turkey’s already low FX reserves, and is essentially one large hidden interest rate hike.

The lira was trading at 13.36 to the dollar on Wednesday morning at 11 a.m. in Istanbul, already facing a rocky start to the new year after having lost about 45% of its value against the greenback since the start of 2021, which was its worst year in two decades.

According to experts, Turkey is the only country where the central bank has started easing monetary policy against the backdrop of persistently rising inflation and inflation expectations.

On the other hand, Turkey recorded 66,467 new COVID-19 cases in the last 24 hours, the highest daily figure on record, health ministry data showed on Wednesday, as infections surge due to the Omicron variant of the coronavirus.

It also recorded 143 COVID-related deaths in the same period, the data showed. Cases in Turkey have more than doubled in just over a week as the Omicron variant became dominant in the country.

Even before the coronavirus pandemic, Turkey was trying to ward off a recession as it struggled with mountainous debt, steep losses in the value of the Turkish lira, and rising inflation. But in recent weeks that slow-moving train wreck has sped up with a ferocious intensity.

Turkish people are now stuck between the hammer of poverty and the chisel of the coronavirus pandemic.