The Turkish lira has lost over a quarter of its value this year, as skyrocketing inflation and the central bank’s unwillingness to hike interest rates fuel worries of another currency crisis.

Turkey, no stranger to booms and busts as well as severe currency fluctuations, has long been seen as one of the riskier developing economies, running big current-account deficits and depending on external funding to fuel unconventional pro-growth measures.

The following are some recent lira flashpoints:


Concerns about the stability of the banking system grew in late 2000, forcing banks to cut interbank connections to weak lenders and investors to sell equities and government bonds.

The failure of Demir Bank has accelerated capital flight, and the central bank has suspended emergency credit lines to lenders in order to protect its domestic assets.

Turkey obtains $10.5 billion from the IMF, enabling the central bank to preserve the lira’s dollar peg, but only after the currency falls 25% in less than three weeks.

A political crisis erodes trust in the system, provoking an assault on the lira. On February 22, the government allows the lira to float, and it falls by nearly one-third versus the dollar.


Turkey is one of the developing markets that has suffered as a result of Federal Reserve Chair Ben Bernanke’s announcement in May 2013 that the US central bank would stop its asset purchases.

Domestic problems add to the burden, with a corruption scandal prompting key ministers to leave and a government upheaval.

Policymakers are hesitant to intervene to prevent the lira’s decline as President Tayyip Erdogan asks for low interest rates ahead of local elections. The currency’s decline pushes the central bank’s hand in January 2014, when it raises rates to 12.5% from 7.75% in an extraordinary midnight meeting.


With a July 2016 coup attempt and a constitutional referendum in 2017, Turkey undergoes seismic political upheavals, resulting in a transition from a parliamentary to a presidential administration.

In May 2018, Erdogan pledged stronger monetary policy control and lower rates, adding to worries about economic instability.

Washington applies economic penalties after Turkey detains American pastor Andrew Brunson on terrorist allegations, causing the lira to plummet by 25% in August alone.

The crash triggers an economic catastrophe, resulting in a slew of sovereign ratings downgrades and ripple effects across developing markets.


With the reopening following COVID-19, the central bank cuts interest rates by 500 basis points between September and December 2021, even as inflation rises to 36 percent by year’s end due to supply chain snags and growing demand.

The lira falls almost 30% in November, causing policymakers to take efforts to convince depositors, banks, and businesses to retain lira rather than foreign currency while the central bank intervenes to keep the lira stable. more info

After a few weeks of relative peace in early 2022, the lira crisis resumes, with Russia’s invasion of Ukraine on February 24 contributing to worldwide price spikes. In Turkey, inflation has risen beyond 70% and is predicted to rise further. Geopolitics adds to the strain, as Ankara opposes Sweden and Finland joining NATO, and a border attack into Syria looms.

Analysts believe that the nation may face another currency crisis, with net foreign currency reserves profoundly negative, interest rates at 14 percent, and Erdogan promising to keep rates low.

Source: Reuters


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