Turkish lira falls against US dollar to record level

The cost of the Turkish lira against the dollar has updated its historical low and for the first time has overcome the mark of 25 lira per dollar.

The national currency rate is 25.48 lira per dollar, Caliber.Az reports with reference to Turkish media.

Türkiye's Central Bank has increased interest rates from 8.5 per cent to 15 per cent to counter sky-high inflation.

Following the decision, the Turkish lira dropped 2.5 per cent to its weakest on record against the US dollar, exceeding 24 lira per dollar.

The monetary policy committee made the decision on June 22 as part of a process to "establish disinflation as soon as possible", the central bank said in a statement.

It added that tightening measures would continue "as and when necessary" until there was a "significant improvement in the inflation outlook". 

The inflation rate in Türkiye, which soared to 85 per cent in December, currently stands at around 40 per cent. 

In recent years, President Recep Tayyip Erdogan has subscribed to an unorthodox economic theory that high-interest rates cause inflation.

He had previously pressured the Central Bank to cut borrowing costs and increase credit access, despite conventional wisdom saying otherwise. 

The lira has shed more than 90 per cent of its value over the past decade, and the country's soaring inflation has driven away foreign investors.

"Not enough"

In a bid to turn around the country's economic fortunes, Erdogan appointed a new economic team following last month's pivotal election.

Internationally respected ex-banker and former finance minister Mehmet Simsek was appointed as treasury and finance minister.

Earlier this week, the government announced an increase to the monthly minimum wage to about $483 as part of an effort to ease the impact of inflation. 

Simsek and Vice President Cevdet Yilmaz are visiting the United Arab Emirates on Thursday to seek investment for Turkish markets, two sources familiar with the trip told Middle East Eye.

Tim Ash, a long-term investor in Türkiye, said on Twitter that the Turkish Central Bank disappointed the markets with an insufficient hike.

“With inflation at 40 per cent, that’s just not enough to convince,” he said.

Ash said he doubted that promises of future rate hikes by Central Bank Governor Hafize Gaye Erkan would please the markets, which he said would recall how her predecessor Naci Agbal tried to gradually raise rates only to be fired in 2021.

Many global investment banks expected aggressive hikes, taking the benchmark rate to something between 20 to 40 per cent.