With forecast and data being negative, every single day becomes worse and worse for the Turkish economy, while the president of the country, Recep Tayyip Erdogan keeps repeating his country’s economy is strong.
In the meantime, inflation has hit a record high number, increased by 2.3% in August and by 17.9% on an annual base, as the National Statistical Service in Turkey announced earlier today.
The great success of Erdogan after coming to power in 2002 had been the fact that he had managed to stabilise the lira-dollar exchange rate as well as decreasing the inflation. In current months, Turkey has returned to 15-year-old rates.
The Central Bank of the country announced today that it will take the necessary measures to support price stability and adjust its monetary policy at the next week’s meeting. Economists, however, argue that this delay in raising interest rates may cost the Turkish economy a lot, and that immediate and effective action is needed.
In an effort to curb investors’ concerns, Turkish Finance Minister Berat Albayrak argues that the rapid depreciation of the lira does not pose a risk to the country’s banks, assures the central bank is independent and promises a noticeable reduction in the current account deficit to the end of the year and in 2019.
“When we look at the bank’s balance sheets and all the credit channels of that period, we see that there is no real risk from the exchange rate in the banking system”, he told Reuters, while dismissing concerns about the rising private sector debt – which is in a foreign currency – stressing this translates into a low percentage of the country’s GDP.
Turkey’s central bank has perhaps been more independent than the one of other countries and will continue to take measures to continue being independent”, he said, basically responding to economists’ fears about Erdogan’s interventions at the Central Bank to raise interest rates.
The Turkish pound has fallen by more than 40% compared to the dollar, a trend boosted in August, as relations between Ankara and Washington are still tense. On an annual basis, depreciation of the pound has exceeded 70%.
In a report, Bloomberg argues that “if the central bank continues to be prevented from making substantial interest rates, the crisis will worsen. While the cost is constantly increasing for businesses it has already been regarded as punitive for Turkish banks. There is the possibility of bankruptcy or default on payments.”
Car sales drop by -52%, successive increases in natural gas and electric power
In any case, given data and the market are at terrifying levels. In August 2018, car sales dropped by 52% compared to August 2017 and, according to the Turkish newspaper Hurriyet, many auto rental companies are facing bankruptcy due to their foreign currency loans.
At the same time, the protection from creditors demanded by the Turkish shoe-giant Hotic, that has 150 branches across Turkey, is another example of how bad the situation is.
State gas company Botas announced increases in gas prices for industrial and domestic use
Last month, Botas had raised the price of gas for electricity production by 50% and for home use by 9%.
Also, the Turkish energy regulator announced that it has increased electricity prices by 14% for industrial use and by 9% for households, the same rise in prices like the previous month…. / IBNA