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Currency crisis: the Turkish lira is in bloodbath as inflation spirals out of control

By Jenni Reid and Piero Cingari

10:44, 9 June 2022

A customer counts Turkish lira bank notes
The lira has declined 23% against the dollar this year – Photo: Bloomberg Creative Photos

The Turkish lira is moving towards the record low it set last December, with its rate against the dollar (USD/TRY) reaching 17.2 on June 9, 2022.

The currency’s dramatic decline comes as inflation in Turkey has rocketed to a more than 20-year high of 73% amid president Recep Tayyip Erdoğan’s unorthodox monetary policy decisions – and both the lira and inflation may have further to move in their respective directions. explains what has happened over a rollercoaster six months, and what may lie ahead. 

US Dollar-to-Turkish Lira (USD/TRY) exchange rate skyrocketed in June

TRY briefly hit its current all-time low of 18.4 in late December 2021, after the central bank slashed its key interest rate from 15% to 14%, despite inflation then running at 21%, and Erdoğan indicated he would continue to cut rates to sustain the economy.

Some support for lira came soon after as a Financial Times report found the central bank had used billions in foreign currency reserves to prop up the currency. Official figures later showed Turkey spent at least $7.3bn on interventions in December. 

President Erdogan came up with a lira deposit protection scheme on December 20. Under this plan, the Turkish government promises to pay back depositors in Turkish lira if the value of the currency drops by more than the interest rate.

Despite this, all in all the currency weakened by 44% against the dollar last year, and has steadily lost 23% of its value since the start of the year. 

Earlier this week, Erdoğan delivered a speech in which he said the country would continue to cut rates, that his strategy was to increase production, exports and employment, and that a current account surplus would tame inflation and stabilise the currency. 

Analysts at BBVA research expect consumer inflation to rise above 80% in the coming months, before slowing down to near 60%.  

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USD/TRY: 18 in sight?

USD/TRY exchange rateUSD/TRY exchange rate – Chart: TradingView

“That of the Turkish lira is a monologue that has been continuously repeated for years, and it is a clear illustration of how the loss of independence of a central bank, bent to political whim, may result in a complete loss of faith in the currency,” said Piero Cingari, analyst at


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Short position overnight fee 0.0137%
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Spread 106.00


2,401.36 Price
-1.830% 1D Chg, %
Long position overnight fee -0.0198%
Short position overnight fee 0.0116%
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Spread 1.20


3,490.05 Price
-1.110% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00


19,526.60 Price
-1.140% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 7.0

“The fragile lira deposit protection scheme implemented in December not only had short-lived effects, but is now completely insufficient to restore confidence among Turkish residents, since in the presence of record negative real rates – annual inflation of over 70 percent when interest rates are only 14 percent – the Turkish lira lacks the underlying fundamentals to stand on its own and is therefore left at the mercy of the speculation.”

Erdoğan announced several measures to protect the lira in December, including that the government would make up losses incurred by holders of lira deposits if their decline against hard currencies exceeded bank interest rates.

Interest rates in Turkey are million miles away from inflation

Turkish interest rates vs inflationTurkish interest rates vs inflation – Chart: TradingView

Furthermore, said Cingari, “Turkey’s gross international reserves started going down again, falling to the current $60 billion from $88 billion in November 2021. This was because the balance of payments deficit widened due to deterioration of both the trade balance, due to increasing prices on raw material imports, and the capital account, due to the “dollarization”.

“When policymakers ignore these variables, the result is a bloodbath for the currency, unless the nation is ready to apply capital controls that would close its economy to foreign trade and investment. But Turkey’s manufacturing sector can’t pay for it.

“At least until the next presidential elections in 2023, the Turkish currency will be subject to Erdoğan’s diktat, and the Turkish Central Bank will only be required to conduct emergency rate rises if the situation becomes untenable. After that, everything will depend on how the elections turn out.”

Inflation in Turkey hit a 20-year high above 73%

Turkey inflation rateTurkey inflation rate – Chart: TradingView

Yohay Elam, analyst at FXStreet, agreed the situation for the lira looked bleak, and compared its decline to that of the Japanese yen, which has also weakened as an outlier in an environment of rising rates. 

“The [Turkish] president’s insistence on lowering interest rates at a time of high inflation – and as other central banks raise rates – could send the lira far lower,” he told

“A hawkish ECB decision would deal another blow to the battered currency, as it would further emphasize Turkey’s divergence from its major trading partner.”

The lira is also trading around a record low against the euro, and on June 9 was worth 18.54 per euro.

EUR/TRY exchange rate

Markets in this article

36.11011 USD
-0.16051 -0.450%
33.14378 USD
-0.06089 -0.180%

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