Turkey’s Currency Crisis Deepens After Erdogan’s Latest Rate Cut

A US dollar banknote is seen on top of 50 and 100 Turkish lira banknotes in this picture illustration in Istanbul, Turkey, August 14, 2018. (Reuters/Murad Sezer)
A US dollar banknote is seen on top of 50 and 100 Turkish lira banknotes in this picture illustration in Istanbul, Turkey, August 14, 2018. (Reuters/Murad Sezer)
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Turkey’s Currency Crisis Deepens After Erdogan’s Latest Rate Cut

A US dollar banknote is seen on top of 50 and 100 Turkish lira banknotes in this picture illustration in Istanbul, Turkey, August 14, 2018. (Reuters/Murad Sezer)
A US dollar banknote is seen on top of 50 and 100 Turkish lira banknotes in this picture illustration in Istanbul, Turkey, August 14, 2018. (Reuters/Murad Sezer)

Turkey's crisis accelerated on Friday as the lira plunged 6% to a new all-time low, gripped by concerns over an inflationary spiral brought on by President Tayyip Erdogan's unorthodox plan to slash interest rates in the face of soaring prices.

The lira had tumbled as far as 16.69 versus the dollar by 1004 GMT. It has lost 56% of its value this year - including 40% in the last 30 days alone - deeply unsettling the major emerging market economy.

Erdogan's decision to push through 500 basis points of monetary easing since September, including another big cut on Thursday, has sent inflation soaring above 21%. It is likely to blow through 30% next year due to ballooning import prices and an emergency hike in the minimum wage, economists say.

"With Erdogan seemingly becoming more entrenched in his anti-interest rate stance, the longer the currency crisis lasts, Turkey could be beyond the point of no return," said Patrick Curran at Tellimer, describing the lira as totally disconnected from fundamentals, Reuters reported.

"We are still not ready to catch the falling knife," he said of the possibility of re-investing in Turkish assets. "As long as Erdogan is at the helm there is nothing to prevent the lira from continuing to depreciate."

The knock-on effects have been fast and painful as Turks watch their savings and earnings dissolve.

Erdogan announced a 50% hike in the minimum wage, to 4,250 lira ($275) per month next year. But that is expected to boost overall consumer price inflation by 3.5 to 10 percentage points.

The hike affects some six million workers but, given the sharp lira depreciation, the new minimum wage is still lower than the equivalent $380 a year earlier.

"We believe that the current mix of policies is essentially unsustainable," Maxim Rybnikov, director sovereign ratings for the EMEA region at S&P Global Ratings, said in a webcast.



IMF Eyes Revised Global Forecast, but Warns Trade Tensions Still Cloud Outlook

A hazy view of the skyline in Toronto, Ontario, Canada, July 14, 2025. REUTERS/Carlos Osorio.
A hazy view of the skyline in Toronto, Ontario, Canada, July 14, 2025. REUTERS/Carlos Osorio.
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IMF Eyes Revised Global Forecast, but Warns Trade Tensions Still Cloud Outlook

A hazy view of the skyline in Toronto, Ontario, Canada, July 14, 2025. REUTERS/Carlos Osorio.
A hazy view of the skyline in Toronto, Ontario, Canada, July 14, 2025. REUTERS/Carlos Osorio.

The International Monetary Fund warned on Friday that risks related to trade tensions continue to cloud the global economic outlook and uncertainty remains high despite some increased trade and improved financial conditions.

IMF First Deputy Managing Director Gita Gopinath said the fund would update its global forecast later in July given "front-loading ahead of tariff increases and some trade diversion," along with improved financial conditions and signs of continued declines in inflation.

In April the IMF slashed its growth forecasts for the United States, China and most countries, citing the impact of US tariffs on imports now at 100-year highs and warning that rising trade tensions would further slow growth.

At the time, it cut its forecast for global growth by 0.5 percentage points to 2.8% for 2025, and by 0.3 percentage points to 3%. Economists expect a slight upward revision when the IMF releases an updated forecast in late July.

According to Reuters, Gopinath told finance officials from the Group of 20 major economies who met this week in South Africa that trade tensions continued to complicate the economic outlook.

"While we will update our global forecast at the end of July, downside risks continue to dominate the outlook and uncertainty remains high," she said, in a text of her remarks.

She urged countries to resolve trade tensions and implement policy changes to address underlying domestic imbalances, including scaling back fiscal outlays and putting debt on a sustainable path.

Gopinath also underscored the need for monetary policy officials to carefully calibrate their decisions to specific circumstances in their countries, and stressed the need to protect central bank independence. This was a key theme in the G20 communique released by finance officials.

Gopinath said capital flows to emerging markets and developing economies remained sluggish, but resilient, in the face of increased policy uncertainty and market volatility. For many borrowers, financing conditions remained tight.

For countries with unsustainable debt, proactive moves were essential, Gopinath said, repeating the IMF's call for timely and efficient debt restructuring mechanisms.

More work was needed on that issue, including allowing middle-income countries to access the G20's Common Framework for Debt Restructuring, she said.