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The dollar rate has been steadily increasing for the past five years. The Dollar/Turkish Lira (TL) parity was only 1.90 in 2013. This Friday morning, it reached 7.38 for the first time ever, crossing the psychological threshold.
Turkey’s economy faces some very challenging times. Turkey’s economy is negatively affected by political and diplomatic developments.
Turkey’s annual inflation rate reached nearly twelve percent, according to official figures. Despite this rise, the dollar has continued to also rise. The lira is now the worst performing currency among the developing countries.
Structural problems such as the current account deficit and the tax system in the economy have made the Turkish lira even more fragile. Even as Turkey’s current account deficit has risen phenomenally, there has been a great decrease in the inflow of international investments.
The long-standing diplomatic tension with the USA has recently turned into a ‘sanction crisis’ and the USA’s embargo on Iran has also caused the lira to decline. Despite the increasing tension in foreign policy and the expectation of a rate hike, the Central Bank, which did not raise interest rates at the Monetary Policies meeting in July, caused a serious loss of confidence in the markets and reduced the impact of previous rate hikes.
There are high levels of private sector debt. As the dollar rate levels rise, and there is a possibility of continuation of the upward trend in inflation rates, Turkey is expected to be negatively affected by the credit crunch. Turkish companies’ foreign debts have turned into a heavy burden.
According to the Central Bank, the total foreign debts of companies in Turkey rose to US $ 242.5 billion in the first five months of the year. Each penny increase in the dollar exchange rate increases the total external debt amount by TL 4.2 billion.
According to many financial analysts, companies avoid making new investments due to the high interest rates, production costs and high inflation rates at a time when consumer demand has decreased. There is a possibility that with the credit crisis, Turkey will face a serious slow-down in growth.
