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The Already Weak Turkish Lira Under Pressure By Rising Inflation In August

The Already Weak Turkish Lira Under Pressure By Rising Inflation In August
Rate of inflation in Turkey reached the highest mark in 51 years in the month of August which exerted greater pressure on the already tumbling currency of the country – lira. Meanwhile, a rate hike has bene hinted at by the central bank of the country for next week.
According to the state statistics institute of the country, Turkey noted an annual CPI inflation rate of 17.9 per cent in August compared 15.9 per cent in July, primarily driven by increased costs for transportation and energy which was compounded by a very weak weaker lira.
There was a further fall of 1.2 per cent in the lira at the start of the week adding ot the woes of the currency which has already dropped by over 40 per cent against the US dollar since the beginning od the year. the lira now traded at 6.62 against the U.S. dollar.
The rise in core inflation in the country in August also fueled speculations about a possible rate hike by the country’s central bank may when it meets to settle its monetary policy on September 13.
The central bank pledged of taking necessary actions against that there can be some control over the inflation rate which it said indicated "significant risks to price stability". the central bank said this in a statement soon after the statistics agency issued the inflation data for August.
"The monetary stance will be adjusted," the statement added.
However, Turkish President Recep Tayyip Erdogan is against raising of interest rates because he feels that it would deter investments and the aim of propelling economic growth would be hurt.
In a note to all of its clients, Enver Erkan, an economic analyst from GMC forex, said that "all options are on the table" despite the hinting by the central bank of increasing interest rates.
It would not be sufficiently possible to control the rising inflation rates by monetary policy alone, he also argued while mentioning that there is immediate need for Turkey to undertake structural reforms in the economy so that it becomes more resilient to economic shocks.
18 Turkish banks were downgraded last week by Moody's rating agency as it was not confident about the refinancing ability of the banks. There is a sever crisis of foreign investments in Turkey even as the country is now in a diplomatic clash with the United States over the detention and arrest of an American pastor on charges of espionage.
Sanctions on two Turkish ministers were imposed by the U.S. President Donald Trump along with increasing the import tariffs on steel and aluminum from Turkey as a pressure tactic for the release of the American priest.
In retaliation, steep import duties on some US goods was announced by Turkey.

Christopher J. Mitchell

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