0

0

0

0

0

0

0

0

0

This article is more than 3 year old.

Turkish lira crisis: Why is the currency falling?

Turkish lira crisis: Why is the currency falling?
Lira, Turkey's currency, has been in news due to its massive depreciation. The currency has already fallen 36 percent against the US dollar this year.
Until Qatar announced that it will pump in $15 billion in Turkey on Thursday,  the real-time loss of the currency was up to 80 percent for the year.
The Qatari money will be channelled into banks and financial markets, a Turkish government source told Reuters.
The rise in the numerical value of the currency as against the dollar shows that the currency is weakening. If the numerical value falls, it indicates that the said currency against the dollar is strengthening. The US dollar is the benchmark currency for comparing and understanding the fluctuation in the global currencies.
So, why is the lira falling?
Dollar debt
The economy is dealing with high amounts of debt in its private sector and foreign funding.
According to reports, the country is dependent on foreign-currency debt more than any other major emerging market.
Along with the debts, the effect of the raise in the Fed rates has also impacted the currency. The rise in the US rates has made things worse on emerging markets such as Turkey, which uses local currencies to pay down their dollar-backed debts.
US-Turkey trade tensions
Amid the weakening of the currency, US President Donald Trump worsened the situation by doubling the import tariffs on Turkish metals.
Trump doubled the tariffs on the country's metals exports to the US last week prompting Turkey, which says it will not bow to threats, to raise tariffs on US cars, alcohol and tobacco by the same amount on Wednesday.
Inflation and interest rates
Turkey's consumer-price inflation rate has been as much as 15.8 percent in July. In June, it was 15.4 percent. The high inflation rate puhsed down the currency's value further.
The Central Bank of the Republic of Turkey has attempted to prevent the rise inflation by raising the interest rates. However, most times it has not borne fruit as Recep Tayyip Erdogan, President of the country, has been highly critical of increasing the rates.
Insufficient foreign exchange reserves
According to data reports, Turkey has insufficient forex reserves. The country has reserves of around $130 billion with a short-term foreign debt of $180 billion, nearly 70 percent of the economy's overall debt, that is $460 billion.
The currency plunge caused food, fuel and rental prices to surge across the country. 
Not only did it affect the country, it had an impact on global currencies as well.  The Indian rupee fell to 70.19 against the US dollar amid the currency crisis.
next story