The Turkish Lira reached a new record low today. The worst value in the big Lira crash in August 2018 was at an exchange rate of 7.23 Lira to 1 Dollar. After it recovered to a value of 5.20 by February 2019. But since then the Turkish Lira has been steadily losing value again. And now it has “made it”! It is trading at an exchange rate of 7.26. The chart shows the rise of the US Dollar against the Lira since the end of 2017.
Turkish Lira falls ever lower
The day before yesterday we already mentioned the reasons for the decay. But there are currently new ones being added. Interest rates continue to fall, with inflation remaining well above the interest rate despite recent declines. A “strong” US Dollar, into which investors worldwide are fleeing. In times of crisis they prefer to trust the Greenback rather than the Lira, the Argentine Peso and many other currencies. And currently, the foreign exchange reserves of the Turkish central bank are moving more and more into the spotlight.
Although the central bank and state-controlled banks in Turkey have been trying to revalue the Turkish Lira for some time, for example by selling Dollars and buying Lira, it has not helped. The free currency market was stronger and the pressure is sending the Lira further and further south. According to reports, Turkish Finance Minister Albayrak said in a telephone conference yesterday that the foreign exchange reserves of the Turkish Central Bank amounting to 50 billion US Dollars were sufficient. As the Turkish Lira currently shows, the foreign exchange market disagrees.
Dollar Swap availability
The telephone conference yesterday was intended to reassure important foreign investors. But apparently the opposite happened. He also tried to convince investors that the Turkish banks were strong and that the economy would quickly recover from the Corona crisis. Also, there could be problems with the possible availability of Dollar swap lines for the Central Bank by the US Fed. At least that is being suggested at the moment.
Observers such as a Swiss portfolio manager, for example, say it is only a matter of time before the weak Turkish Lira and too low foreign exchange reserves lead to a crisis. Question: Hasn’t this crisis already arrived? Because Turkish companies, which are heavily indebted in US Dollars, have to raise more and more, and even more Lira. In order to be able to pay the same high credit rate in US Dollars. On the positive side, of course, it should be noted that this constantly falling Turkish Lira is good for the export economy and tourism industry in Turkey. Buyers of goods and tourists are paying less and less, which should boost demand.