With the spread of the epidemic in the whole world, the governments all around the world have suffered from the phenomenon of inflation from which there is no escape, and all countries have been placed on one path regardless of their policies, due to globalization and economic interdependence, and Turkey has emerged with its policy, especially the monetary policy that defied all laws agreed economics.
A report published by the American Modern Diplomacy website stated that the comparison between the Turkish economy and the economies of European countries shows the challenge that the Turkish government is taking to the regional dynamics, which it is still continuing with so far in light of the pandemic, as the Turkish economy achieved in the first quarter of this year a growth of 7 percent % compared to the same quarter last year.
Turkey and a few European economies were able to counter the devastating impact of the pandemic, as the economy in 2020 witnessed a growth of 1.8% over 2019.
Turkish President Recep Tayyip Erdogan stated his optimism about the performance of the Turkish economy, and said that growth would exceed the figures recorded in the first quarter of the year, but he did not talk about the increasing threat of inflation. According to the report, the Turkish economy put an end to the annual inflation rate, and this limit reached 5%, but Too far from containing today's prices.
As stated in the report, Turkey is close to witnessing hyperinflation due to the rise in commodity prices with the opening of the economy, and for information, the Central Bank of Turkey reported that the inflation rate in July was close to 18.5%.
It is true that supply constraints may be the reason behind the pressures of inclusion globally, but there can be another reason, especially in the case of Turkey, and this other factor is the significant decline in the value of the Turkish lira, and this has led to the high import costs and the inability to afford them.
The depreciation of the Turkish lira was also one of the main reasons behind the rise in prices, as the depreciation of the lira led to an increase in the trade deficit by 51.3% in July, equivalent to approximately 4.275 billion dollars, despite the increase in the percentage of exports to reach 10.2%, and it also increased Imports increased by 16.8% compared to the same month in 2020.
The author of the report added, "It is clear that tight monetary policy and increased exports are unable to address the impact of imports that drive inflation rates tremendously, and in turn, the depreciation of the lira exacerbates the deficit."
To stop the accelerating rise in prices and to maintain the purchasing power of savers and investors, the Central Bank pledged to fix the interest rate at its highest levels, which amounted to 19% above the inflation rate.
The report added that the Turkish economy is currently experiencing a period of significant growth, although the inflation rate has risen much more than usual, but the unemployment rate has shrunk by 2.5%, in this way it is understandable the desire to increase growth more and more.
According to the writer, the Turkish economy is going through a period of excessive growth, so it is expected that by the end of the current year, the Turkish economy will expand by 10%, and this is if there are no closures.
The Central Bank also expects that the inflation rate will decrease by the end of 2021 to 14%, contrary to economic experts who believe that it will remain at 18%.
According to the writer, if the central bank's decision-makers respond to President Erdogan's pressure to cut interest rates, then the country will fall into another currency crisis, and the country will tighten a period of economic instability for a long time.