Turkish residents took to the streets on Tuesday (23 November) as the Turkish lira plummeted to a new record low against the dollar.
In the Istanbul neighbourhood of Kurtuluş, residents chanted “no bread, no freedom”, while in the south-eastern city of Diyarbakir, shop owners burned what looked like fake dollars in a gesture of protest, saying: “We cannot sleep, we don’t know about our future.”
The currency has rapidly depreciated over the past couple of weeks, and is now worth around 70 per cent less than it was five years ago. Most economists put the drop in value down to President Recep Tayyip Erdoğan’s unconventional views on interest rates.
The lira fell to a record low of 13.1 per dollar on the morning of 24 November, but has since recouped some of its value, standing at 12.15 at the time of writing.
What is behind the drop in the lira?
The recent spiral followed a speech on 22 November by President Erdoğan in which he said a tight interest rate policy would not reduce inflation. He promised that Turkey would succeed in what he called its “economic war of independence”.
The speech followed three consecutive interest rate cuts by Turkey’s central bank, with the aim of boosting exports and jobs, following pressure from the president.
Erdoğan holds the unorthodox view that high interest rates cause, rather than tame, inflation. Most mainstream economists think the opposite: lower rates – and a weaker currency – usually make it worse because imported goods cost more. His views have caused the lira’s value to drop steadily over the past five years. In March, he sacked the central bank governor, Naci Ağbal, who had been steadily raising rates in order to boost Turkey’s economic standing.
How is it affecting people in Turkey?
The drop in the lira has already affected food prices. On 11 November, the price of bread in Istanbul increased to 2.5 lira for 230 grams.
According to bread producers, this new price does not even cover the cost of production as flour prices have risen in the wake of the lira’s depreciation.
The chairman of the Turkish Bread Producers’ Union, Cihan Kolivar, said that the price of bread would reach 4-5 lira in parts of Istanbul (though this figure was disputed by another industry leader).
Inflation almost hit 20 per cent in October, according to government statistics – the highest annual rate since January 2019. That raise was before the lira’s recent downward spiral, meaning further increases are likely.
Turks have turned to electronic goods as a store of value amid the crisis, with Apple’s Turkish website blocking sales of iPhones and other products on 24 November. Would-be purchasers received a “not currently available” message.
An Apple store employee told Reuters, “It is pretty surreal with the economy and all, but people see it as a store of value and flock to stores. They know they’ll be able to sell it a year later for more than what they paid.”
In an extraordinary press conference, Kemal Kılıçdaroğlu, the leader of the opposition party CHP said today (24 November): “Erdogan puts the economy into a tailspin with every conversation. We have reached a critical point. The children of the poor will be condemned to starvation. Hunger is at the doors of the poor – people will not be able to feed their children.”