6 months ago • 2 mins
What’s going on here?
The Turkish lira dropped to a record low on Tuesday – the latest gut punch for an economy struggling to catch its breath.
What does this mean?
Turkey’s been rolling the dice with a high-risk economic gambit: trimming interest rates in a bid to tackle inflation – a strategy that puts it at odds with just about every Economics 101 class you ever slept through. Unsurprisingly, those moves have fanned the flames of inflation – and since lower rates are shunned by investors and savers anyway, the lira’s been in free fall ever since, shedding a fifth of its value in the last year.
For a while, a neck-and-neck election held out a glimmer of hope for change, but investor optimism fizzled out when the current government clinched victory over the weekend. That triggered a swift investor retreat – denting the lira by the most in a year and pushing it to a new record low against the US dollar.
Why should I care?
For markets: Bosphorus bust.
There are whispers that a more conventional finance minister could make a comeback in the face of this financial maelstrom, potentially steering the economy back on course. And if that doesn’t happen, then this economic quicksand could deepen. See, government efforts to halt the lira’s slide – like selling off foreign reserves and buying lira in order to shore up the currency – can only last so long: the country’s running out of reserves pretty quickly, and with government finances already on the brink, the lira might soon be sliding again.
For you personally: Pack your bags.
Turkey's economy is looking worse for wear right now, but there might be some respite on the horizon. See, a currency at rock-bottom is exactly what travel-starved, cash-stretched globetrotters will be on the lookout for – and an influx of tourists could give the economy a short-term shot in the arm.
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