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The Turkish lira fell below 28 lira against the US dollar on Monday, hitting the lowest figure ever recorded. So far this year, the currency has lost more than half its value against the US dollar.
The Turkish central bank raised the key interest rate by 500 basis points to 30% in September. The action represented the fourth consecutive boost targeted at combating excessive inflation as part of a broader policy reversal.
The regulator refused to infuse extra foreign-exchange reserves in August in order to support the native currency and regulate the exchange rate. The decision to relax banks regulatory standards undoubtedly sent the currency plunging.
In the 18 months through August, Turkey spent approximately $200 billion to support the national currency, depleting reserves.
Last month, the annual inflation rate increased for the third consecutive month to 61.5% in September 2023 from 58.9% in August. The highest inflation jump since December 2022 has been primarily attributed to increases in tax rates and the devaluation of the lira.
Previously, the government supported a low-interest-rate strategy despite significant inflation. This resulted in a currency crisis in late 2021 and inflation of more than 85% last year. Annual consumer price inflation is predicted to reach approximately 60% by the end of the year.