The Turkish Lira reached an all-time low on Tuesday after comments by President Recep Tayyip Erdogan. According to the President, Turkey would fight an "economic war of independence" by maintaining low-interest rates.
The Turkish Central Bank is helping to stymie the historic fall by dipping into its foreign currency reserves. However, the bank's reserves of U.S. Dollars
With the value of the Lira plummeting, the Turkish population faces drastically rising inflation. Consumer prices are rising, with the highest spikes being for imported goods and oil products. Turkish businesses are also facing difficulties paying off debt, especially in foreign currencies.
The use of foreign currencies has increased amid the Lira's collapse. Retail spending appears to be increasingly done in foreign currencies. Deposits of Dollars and Euros have risen almost 40% since the beginning of 2021.
With the Central Bank running low on foreign reserves and Erdogan unwilling to adjust rates, the last option for Turkey would appear to be foreign investment. Tensions between Turkey and the United States are tense, and as the European Union's relationship with the country is considerably more strained, investment from either appears unlikely.
President Erdogan, however, is set to receive Crown Prince Mohammed bin Zayed al Nahyan of the United Arab Emirates in the coming days. Turkey's re-approach may secure its financial support to help stymie inflation.
With many other foreign investors balking at the prospect of doing business in Turkey, any support from beyond Middle Eastern partners seems unlikely. Even should the Lira begin to show steady recovery, there doesn't appear to be much trust in Erdogan himself. Besides his earlier comments, the dismissal of Central Bank officials due to policy disagreements has unsettled many would-be investors.
