In negotiations with Russia, Turkey is currently trying to ensure the world's supply of grain from the Ukrainian war zone and thus strengthen its own foreign policy role.

At the same time, President Recep Tayyip Erdogan is undauntedly weakening the national currency, the lira, and with it the economy of his country, which has been hit by hyperinflation.

"The financial markets are completely served these days, consumer confidence is constantly sounding out new historic lows," comments Thomas Meißner, head of economic analysis at Landesbank Baden-Württemberg.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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On Monday, Erdogan once again railed against high interest rates and promised further interest rate cuts.

“This government will not raise interest rates.

We will lower them further," Erdogan said in Ankara after the cabinet meeting.

The key interest rate is 14 percent and the real interest rate in view of 73.5 percent inflation is already almost minus 60 percent.

Finance Minister disagrees

The markets are familiar with Erdogan's repeatedly expressed opinion, which economists consider to be misguided in the current inflation environment, that interest rates are bad for the economy.

But they haven't gotten used to it yet.

Because although Finance Minister Nureddin Nebati (and not the officially independent central bank) quickly declared that neither an increase nor a decrease in the interest rate was planned, the lira lost value again.

On Tuesday, 16.74 lira had to be paid for one dollar.

The lira has lost a fifth of its value since the beginning of the year, compared to 44 percent in 2021.

At best, this pleases tourists who can buy cheaply on vacation in Turkey.

Commerzbank's Tatha Ghose says it's hardly surprising, given Turkey's monetary policy, that the dollar has continued to rise against the lira since the inflation numbers were released, even though the dollar isn't particularly strong in the current environment.

The crash is not only costing those who pay their bills in dollars and euros dearly, but also the national budget.

At the turn of the year, Erdogan launched a program to insure gold or foreign currency that had been converted into lira deposits against currency depreciation at state expense.

This is not just a voluntary arrangement.

Export companies, which tend to benefit from the weak lira, were obliged to carry 40 percent of their foreign exchange balances in lira.

The program had led to a certain stabilization of the price at the turn of the year.

However, Turkey is now also feeling the global economic consequences of the Russian invasion of Ukraine through higher prices for energy and food, such as rising interest rates worldwide.

Where export records no longer help

The government is reporting new export records from month to month and thus foreign exchange earnings, which are also growing due to the revival of tourism.

However, import prices for energy and other supplies are rising much faster.

Only on Tuesday did the central bank announce that it had sold a further 1.8 billion foreign currencies to state-owned companies, primarily to the energy company Botas.

As a result, the current account deficit and thus the need for foreign exchange is growing instead of shrinking, which Erdogan has repeatedly argued is what low interest rates should lead to.

For large and ever larger parts of the population, this is becoming a real problem with prices for food and housing doubling over the course of the year.

No consolation for the lira

Although the monetary policy woes and the rise in inflation began well before the war broke out last year, Erdogan blames the war for it.

"If there hadn't been a clash in the region, people could have felt the tangible benefits of our economic program," he said, adding, "Hopefully we'll be at that point in the first few months of next year." It wouldn't be anymore far from the deadline for the elections.

Analyzes cast doubt on the presidential promise of a speedy recovery.

The fact that the price pressure should also gradually ease in Turkey with a view to 2023 and thus at least theoretically offers scope for a looser monetary policy, "should not be any real consolation for the lira from a monetary policy perspective," writes lira expert Sandra Striffler from DZ -Bank.

Even if inflation falls to the market-expected rate of 27 percent by then, that would still be "light years" away from the central bank's 5 percent inflation target.

Thomas Meißner from Landesbank Baden-Württemberg does not agree with Erdogan's argument that inflation is not the main reason for the country's problems in a "technical" sense.

"Turkey's leadership increasingly gives the impression of not understanding the country's problems, let alone the prospect that these problems could then be solved," he told the FAZ, adding: "The situation in Ankara and the Bosphorus is increasingly resembling that of the early days of the Erdogan era, when he took over a country whose currency was among the weakest in the world.”