Only a series of dubious money-printing moves by the government of Recep Tayyip Erdogan today was able to stop the panic collapse of the Turkish currency which had lost 60% of its value in 2021. The major Turkish stock markets were shut down for much of the day Dec. 17, managing to drop by 9% between the closures ordered by the government. The Turkish lira fell below 17 to the U.S. dollar the same day, and had lost 54% of its value against the dollar in 2021 at that point. Today it is at roughly 18, and stocks have lost another 7% with more halts in trading. The Turkish Central Bank’s repo rate is currently 14%, but that represents a steady lowering of the rate by a full 5% in recent months, and inflation in Turkey is officially running at 21%, with price increases for staples and energy much larger than that.
The outbreak of hyperinflation is not the first to break out in Turkey in this century, but it is the most rapid to develop, and is occurring in a context of energy hyperinflation striking economies across Europe and in developing countries.
Turkey does not have a large or unmanageable foreign debt, but its many large real estate, engineering, and industrial firms are heavily indebted to major trans-Atlantic banks, particularly those in Spain and France. A drop in the values of bonds of both Banco Bilbao (BBVA) and Banco Santander has occurred since the beginning of October in response.
The Turkish government late this afternoon promised it would compensate every citizen or business for losses incurred by holders of lira deposits when the lira declines against hard currencies by more than the bank interest rate. That simply lets the depositor not lose money on deposits – not gain any interest – but the subsidies will require money printing of which the central bank has already done a great deal. It was sufficient, for this afternoon, to let the lira recover to about 16 to the dollar.
