The Intelligence from The Economist Swimming against the currency: Turkey
May 21, 2020
Piotr Zalewski, The Economist's Turkey correspondent, dives into Turkey's economic turmoil, marked by a struggling central bank and a plummeting lira influenced by President Erdogan's controversial policies. He discusses the implications of these challenges for both Turkey and Europe. The conversation also touches on how lockdowns transformed dating, leading singles to rely heavily on virtual interactions, resulting in deeper emotional connections despite physical distance. The episode underscores the complex interplay between economics and social life in unprecedented times.
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Lira's Troubles
- Turkey's lira is struggling due to the country's economic vulnerability and misguided monetary policy.
- Foreign investors see the central bank's lack of independence and Erdogan's unorthodox views on interest rates as problematic.
Erdogan's Monetary Policy
- Erdogan believes, contrary to common economic theory, that high interest rates cause inflation.
- The central bank's independence is compromised, leading to repeated interest rate cuts despite negative real interest rates.
Depleted Reserves
- To support the lira, Turkey's central bank has been using its dollar reserves.
- This intervention has temporarily slowed the lira's decline, but has also depleted the bank's reserves, increasing vulnerability.
