A decade ago one pound would buy you just over 2.2 Turkish lira, but as you can see from the charts below the lira has been on a steady downward trajectory which has now culminated in this landmark low.
Below: Exchange rates over ten years.
Below: Exchange rates over the last twelve months.
On the face of it the recent clashes between neighbouring Azerbaijan and Armenia, and fears over the potential for this to involve Turkey and Russia are behind the most recent weakening of the lira.
However the underlying issues are much broader and have persisted for some time. Add to that Coronavirus and the impact it has had on the economy, including Turkey’s very important tourism economy and the direction of travel for Turkey’s currency was set.
This landmark low has come despite the recent hike in interest rates announced by the Central Bank of Turkey; an increase of 2% announced on 24th September. This first interest rate increase in two years should have provided some support to the lira but other factors appear to have negated any potential benefit.
You can read more background in these Aljazeera news reports:
Good news or bad news?
If you are a tourist you may see this as good news as you will get more lira for your pounds when you exchange them at banks or shops. You can get more for your holiday money providing businesses don’t move their prices to align them with sterling. Some goods and services are priced in pounds anyway so that savvy business owners can appear to keep their prices static for you whilst exchanging your pounds for more lira at the bank. It's effectively a price increase that you don't notice.
For expats in Kalkan it very much depends on your finances and whether your money/income is in sterling or lira. If you have lira in the bank as a kind of sinking fund, things just sunk a little further. If your regular pension income is in sterling you won't feel the immediate impact. For example, if your income is in sterling and you pay 706 lira each month for your SGK health insurance the sterling equivalent is now lower than it has ever been. Your health insurance just got cheaper.
For the citizens of Turkey a weakening of their currency is certainly not good news. In theory this exchange rate may attract more tourists to come and spend their money here in Turkey, but against a background of a resurgence in Coronavirus cases across most countries the likelihood of this happening any time soon in any significant way is remote.
But one thing is certain, a weaker lira will feed through to higher inflation and ultimately, over time everyone will pay more.
Below: Inflation (CPI) is currently 11.77 in Turkey.
Source: Trading Economics
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