Turkey’s economic stability is threatened as the country is being involved in the wars against Islamic State militants and Kurdish separatists. So, escalating violence and a standoff between the local parties pushed the government to call for new elections. Such political uncertainty is obviously undermining the national currency. Against the US dollar, the lira has dropped 32% in the last 12 months and 87% in the last five years. Besides the political turbulence, the Turkish lira has plummeted in value on the back of the central bank’s failure to underpin the national currency. Importantly, the lira has been under downward pressure this year like other currencies of emerging markets. Such a nosedive is caused by the looming decision of the US Federal Reserve on the key interest rate hike. This measure will lead to a capital outflow from less developed countries. The Turkish lira has fallen about 16% in value against the US dollar since January 1, 2015. It is the worst decline among other emerging markets’ currencies. In an effort to tackle the rapid depreciation of the national currency, Turkey’s central bank maintained interest rates unchanged for two months in a row and streamlined some of its tools. However, all efforts have not been able to hinder the lira’s slump. Now, officials of the central bank will have to adopt more resolute measures, for example, to raise interest rates. Turkey’s President Recep Tayyip Erdogan and some ministers from his cabinet called on the central bank not to lower borrowing costs so rapidly to bolster the economic growth.
