The Turkish lira once again suffered notable falls this Thursday, when it fell 3% and reached the unpublished change of 8,655 per euro, a new all-time low. Against the dollar, it has caressed its worst price of all time, up to 7,266 for each greenback, almost matching its worst change against the US currency on May 7, when it plunged to 7,268 per dollar.
The news sounds the alarms in BBVA, one of the largest entities in the country through the Garanti, and adds to all the problems the bank is going through, which is leaving more than 2% this Thursday in the Ibex and whose The share is trading at 2.59 euros, close to March lows. The bank chaired by Carlos Torres and headed by the Turkish Onur Genç, suffered on the stock market last week, after the presentation of its results, when it reported an attributable profit of BBVA in the second quarter of 636 million euros, 49.5% less after incorporating the provisions related to the pandemic.
The seriousness of the situation in Turkey, where its central bank has not managed to contain the drain on the foreign exchange reserve despite multiple interventions, weighs even more on the Basque bank. The currency has suffered a 9% depreciation against the euro and about 6% against the dollar just in the last month.
State entities have sold reserves in foreign currency to help slow the fall of the lyre. Several economists have recommended other measures to the government to curb the depreciation of the Turkish currency, such as raising interest rates or limiting loans. The central bank's forex pantry to prop up the currency has been in contraction for nearly five months, as the monetary regulator has tried to prop up the currency and protect it from financial ruin.
Due to the reduction of foreign reserves, higher inflation, rising debt and a devaluation of the currency, a collapse worse than the spring one is looming, which is already beginning to be felt. The only thing that could prevent inflation from exploding is a increase in interest ratesBut President Recep Tayyip Erdogan and the central bank have held an unconventional and opposite view. For the past year, Erdogan chose to cut interest rates to boost growth and spending to stimulate the economy, especially after the coronavirus paralyzed Turkey.
Turkey's central bank maintains its benchmark interest rate unchanged at 8.25%, since its last cut last May, after nine consecutive reductions from a high of 24% during the first half of 2019.
This whole picture led Moody's to point out in July "New Market Concerns" About Turkey's Economic Policy and forecast "an economic contraction of 5% in 2020, with the slowdown concentrated in the first half of the year, followed by a relatively slow recovery from Turkish standards of around 3.5% in 2021 as a consequence of various structural restrictions." The International Monetary Fund also sees Turkey's economy contract 5% this year, after expanding just 0.9% last year.