ANKARA, Aug. 10 (Xinhua) -- Turkey has tightened last week the monetary policy to save its plunging currency and reassure investors that the country's economy is recovering from the coronavirus pandemic but challenges remain, experts said.
The central bank last Friday stopped funding local lenders with its one-week repurchase rate, forcing the banks to borrow from a more expensive overnight window, following the Turkish lira's plunge to an all-time low of 7.36 against the U.S. dollar.
Analysts said the move equals to a 150 basis-point indirect interest rate hike.
However, the measures seemed to have had little effect on the falling of lira which was traded Monday afternoon at 7.31 against the dollar.
Despite economists' calls for an urgent interest hike to support the embattled currency, the central bank has avoided such a direct move as Turkish President Recep Tayyip Erdogan publicly opposes interest hikes, arguing it will affect growth and fuel inflation.
A series of interest rate cuts since last year have pushed the nation's current account into a deficit, risking a fresh round of inflation, while also fueling demand for foreign currency.
Turkey already had economic problems before the COVID-19 outbreak, trying to recover from a previous currency meltdown in 2018, which triggered a recession. These have turned much worse by the global health crisis.
"In addition to the weaknesses of the economy, the impacts of the measures concerning the coronavirus have dealt a heavy blow and made life much more difficult, especially for low income households," political analyst Serkan Demirtas told Xinhua.
He said that last week's depreciation of lira has made the national currency 22 percent less valuable against the U.S. dollar and other prominent currencies.
"Some economists suggest that the government's ways of tackling the economy have failed to produce resilience and have left it vulnerable to any sort of global turbulence," he noted.
Demirtas believed "a very difficult period lies ahead," referring to Ankara's geopolitical and energy ambitions in Eastern Mediterranean which could flare hostilities with its neighbor and NATO ally Greece, backed by the European Union.
Erdogan has rebuked the criticism, saying that the country's economy is "on the fast lane," downplaying the lira's sharp fall.
He also insisted that the central bank's foreign currency reserves are still strong despite months-long efforts to prop up the currency.
"Turkey's economic system is steady," he told reporters last Friday, indicating that fluctuations are temporary.
In the past two years, Turkey witnessed an outflow of foreign cash from stocks and bonds as regulators made it increasingly difficult for foreign banks to borrow.
Economists fear that Turkey's economy is spiraling towards uncertainty and unpredictability, which will fuel inflation and unemployment and impoverish households who have already seen their purchasing power diminish in the last two years.
"It is not easy to predict in an environment with so much complexity and such impact," said Turkish economist and scholar Mahfi Egilmez.
"Unfortunately, forecasting what will happen is impossible, because things are no longer predictable. In an unpredictable economy, the fact that the risks increase means expenses will also increase," Egilmez from Istanbul's Altinbas University warned.
The COVID-19 outbreak has caused a great loss in employment. Unemployment rate edged up slightly to 12.9 percent in May, up 0.1 percentage points year on year, the Turkish Statistical Institute said Monday.
It also noted that the number of employed people dropped by 2.4 million to 25.6 million in May on an annual basis.
"While there is pandemic uncertainty, we would not expect a positive trend in the overall employment as new hires will not be strong," commented Enver Erkan, economist at Istanbul's Tera Securities.
He added that unemployment among the youth continues to remain at very high levels.
The COVID-19 crisis has also impaired Turkey's vital travel and tourism industry, widening the nation's large foreign-denominated public and private debts to near 435 billion U.S. dollars.
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