The Turkish Lira has experienced a significant decline of 21% since the beginning of 2023, reaching a record low of 25.74 per dollar after a 650 basis point interest rate hike by the central bank on June 22. This depreciation represents a total decline of over 27% in the first half of the year. While many expected the central bank to abandon President Tayyip Erdogan’s unconventional policies, the rate hike fell short of analysts’ predictions, leading some to believe that a higher increase would have demonstrated the government’s commitment to combating inflation. This economic downturn has prompted many Turks to seek alternative assets such as digital currencies like tether, gold, and the greenback, which have become scarce. Despite initial resistance, the deteriorating economic situation has forced President Erdogan to change his monetary policies. The central bank, now under the leadership of Governor Hafize Gaye Erkan, has indicated that rate hikes will be gradual, a sentiment echoed by Finance Minister Mehmet Simsek. Goldman Sachs suggests that the central bank has already begun adjusting rates incrementally with a 6.5% hike. The country’s inflation rate has continued to rise, and interest rates have remained at 8.5% since 2021, a policy that has faced criticism but was defended by President Erdogan until recently approving a policy U-turn, marking the end of “Erdoğanomics.”
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