Turkey has been facing a lot of economic turmoil recently.
Inflation has been rising at startling rates and currently stands at 7% and the
value of the lira (the money used in Turkey which used to be the monetary unit
of Italy, Malta, San Marino and the Vatican City before they replaced it with
the Euro) falls. In an attempt to rectify this situation on Tuesday January 28th
Turkey’s central bank raised interest rates from 4.5% to 10%. The Prime
Minister Recep Teyyip Erdogan had threatened the bank that they would be held
accountable for any impact the increase in interest rates would have but the
bank went ahead with the increase anyways. Mr. Erdogan does have some hopes
that increased rates would help. Tuesday morning saw an increase of the lira by
3.6%, when it had already lost 30% against the US dollar the past year 3.6% in
one day is a good first step.
Turkey has attracted a lot of concern from other countries
as it has a huge account deficit, 80% of which is being financed by short-term
capital. Along with its unpredictable politics many states and companies are
beginning to question whether Turkey’s economy is in trouble. This move by the
central bank, refusing to heed the warnings of Mr. Erdogan may be what Turkey’s
economy needs to slow down and lower inflation rates. It also shows that the
central bank is now finally catching up with the times and is now talking about
increasing lending rates to 12% if things do not improve. This may be just what
Turkey needs to get the lira out of its slump and increase companies confidence
in their economy, but this remains to be seen.
Every country in Western and Eastern Europe is suffering from at least some minor forms of economic turmoil. Every country that can afford to/ achieve at bailing themselves out is one more country that can help all of Europe recover from the economic struggle it is currently in. The more economically stable members NATO has the better it can function because it will have more funding to create helpful projects and dole out aid.
http://www.ft.com/cms/s/0/428393a4-8876-11e3-85a2-00144feab7de.html#axzz2rwVtxxs6
Every country in Western and Eastern Europe is suffering from at least some minor forms of economic turmoil. Every country that can afford to/ achieve at bailing themselves out is one more country that can help all of Europe recover from the economic struggle it is currently in. The more economically stable members NATO has the better it can function because it will have more funding to create helpful projects and dole out aid.
http://www.ft.com/cms/s/0/428393a4-8876-11e3-85a2-00144feab7de.html#axzz2rwVtxxs6
It's interesting to me that the bank just went along with its plan without heeding the Prime Minister. I wonder what kind of power the bank has in Turkey's government if it's allowed to do what it wants. I have no background in economics though, so this might have gone over my head a bit, but it will be interesting to see who ends up being right in this situation, the bank or the Prime Minister.
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