The Turkish currency, lira, has witnessed a devaluation of around 40% this year and it is leading to all sorts of problems.
The situation worsened when a diplomatic brawl broke out between USA and Turkey. An American pastor was arrested by Turkish authorities on the charges of being a spy.
The American government is demanding his return while the Turks are adamant to prosecute him.
This led to President of US Donald Trump imposing extra tariffs on certain products from Turkey.
An already weakened lira declined in value by a further 20% as a result of this move.
So, the situation is grim and whether it would improve remains a major question.
Future Prospects Of Lira
Contrary to the grim prognosis by some experts, the situation is not as bad as it may seem. The fracas between USA and Turkey is boiling over right now but the situation may calm down in the future.
A meeting has taken place between the alleged spy and American diplomats and that could lead to some sort of a thaw.
However, that won’t be the end of the whole problem as even before this controversy, the lira was in a bad state.
The real issue has been the accumulation of foreign-currency debt and the low interest rates. But the Central Bank hasn’t been allowed by the President to increase interest rates. As long as the rates remain low, foreign investors are unlikely to invest in the country. With that not happening, the foreign-currency debt would remain high and the lira would not recover.
Since, Turkey is not witnessing any social unrest and the President remains popular, it’s unlikely that he would change his policy. Plus, if the dispute with the Americans gets sorted out, things may improve enough for him to defer any course correction even further.