Totally, the lira has lost almost 30% of its value over the last month and more than 43% YTD. Annual inflation in November was 21.3%, reducing the purchasing power of Turks.

The fall in the lira was triggered by expectations of another 1pc cut in the central bank’s discount rate this week to 14%, which is seen by market participants as a continuation of President Recep Erdogan’s interference in the regulator’s policy.

Erdogan, who once appointed his son-in-law as finance minister, believes that lower interest rates are key to economic growth, DW explains.

He also argues, contrary to popular economic opinion, that high interest rates contribute to inflation. Most central banks lower interest rates to try to stimulate growth if inflation is low, and raise them if they think it is necessary to contain inflation.

International rating agency S&P Global Ratings responded to the central bank’s refusal to raise the discount rate and lowered its outlook on Turkey’s credit ratings to “negative.” The long-term ratings remained unchanged: B+ for foreign-currency liabilities and BB- for domestic liabilities.

“Since the publication of our previous ratings assessment of Turkey on October 22, 2021, the lira-dollar exchange rate has fallen 30% as the country’s central bank continues to lower its key rate amid rising inflation. In our opinion, the central bank policy easing and a significant weakening of the lira will contribute to further acceleration of inflation, which could reach 25-30% in early 2022,” – said in the report of S & P.

The fall in the value of the lira triggered the first mass protests in the country. Thousands of people marched in Istanbul on Sunday to demand a halt to the rise in poverty and an increase in the minimum wage.

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According to the Bureau of Labor Statistics, the Consumer Price Index rose 0.8% in November, an increase of 6.8% over the past 12 months, the fastest annual rate since 1982 (7.2%)

Bloomberg writes that the biggest contributors to overall inflation were increases in gasoline, housing, food and automobile prices.

According to economists, inflation is breaking records, in part because of the pandemic – it has become more difficult to produce and deliver products. In addition, the government supported the population, so households spent more.

Also, wages have risen substantially in recent months, but the rate of wage growth has so far lagged behind inflation.

As noted by the Financial Times, inflation has become a political problem for the White House, putting pressure on the ratings of President Biden, as well as the electoral prospects of his Democratic Party before the midterm elections next year.

The White House took a defensive stance before Friday’s report, and Biden issued a statement seeking to downplay the relevance of the incoming data.

“The energy information does not reflect today’s reality and does not reflect price declines in the coming weeks and months, such as in the auto market,” Biden said Thursday.

Gasoline prices in the U.S. have fallen in recent weeks, as have natural gas prices, with a senior administration official saying that this “relief” is not reflected in the November report.

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