Turkish currency Lira has been plunging to all-time low against the US dollar and the euro in recent months.
The currency has lost 40% of its value since the start of the year, becoming one of the worst-performing currencies of the world.
President Erdogan has been insisting on cutting interest rates despite surging consumer prices. Citizens are struggling to buy food and other goods.
Inflation has accelerated to 20% in the last few months but the central bank cut interest rates by 4 percentage points.
Foreign investors have been worried due to unconventional monetary policy, and have dumped Turkish assets.
Citizens are hurrying to convert their savings into gold and other foreign currencies to protect them from soaring inflation.
As a result of low demand, Lira has been weakening against dollars. It had barely recovered from an economic crisis in 2018.
Effects on people
People are struggling to make their ends meet. The prices of basic goods have escalated beyond controllable limits.
The devalued currency is making import of goods dearer. Everyday material and raw materials have impacted end goods production in the country.
There is also a possibility of brain drain. Qualified and educated professionals are making efforts to relocate to European countries.
The response by President
President Erdogan has been arguing that high interest rates are increasing inflation, contrary to the views of economists who insist on increasing interest rates to counter inflation.
Erdogan expects that his policy will stimulate economy, boost growth and exports, and create jobs. He has promised to break vicious cycle of economy.
He has accused foreign governments for trying to wage an economic war with Turkey and destroying the country’s economy.
Soaring consumer prices have hurt Erdogan’s popularity even among his ardent supporters. Protests have been taking place in major Turkish cities.
Opposition parties have formed a bloc against Erdogan’s party and are demanding for an early election.
The further escalation of inflation and deterioration of economic situation will be detrimental to Erdogan’s re-election bid in 2023.