AlwaysFree: Lira’s Extreme Volatility Hurts Turkish Business More Than High Interest Rates

Turkish businesses said Lira’s extreme volatility is hurting them more than high interest rates. Domestic manufacturers have for weeks been pummelled by unprecedented swings in the currency, which has lost just over a third of its value against the US dollar since September. Most Turkish company executives now see exchange-rate risks as the largest threat to their businesses rather than rising borrowing costs.

Izmir-based packaging producer EA Ege Ambalaj said it effectively lost TRY885,000 ($69,000) after buying 100 tons of the petrochemicals it uses to produce plastic food wrap and duct tape when the lira depreciated against the dollar. Manas Enerji, which makes equipment for utility companies, said the exchange rate uncertainty is the real problem, preventing it from ensuring a profit.

The lira has been the world’s worst-performing emerging-market currency this year. President Recep Tayyip Erdogan has been pressing the central bank to slash interest rates so companies can get cheaper loans, even when inflation is surging. The central bank said this month it would end its easing cycle after cutting the benchmark rate by 500 bps since September to the current level of 14%, over seven percentage points lower than consumer inflation.

The local currency bounced back after Erdogan on Monday announced extraordinary measures, effectively an indirect interest rate hike, to stabilise the currency market. The measures were aimed to mitigate retail investors’ demand for hard currencies and end the crisis.

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