The deal bodes well for Turkish President Tayyip Erdogan. In a matter of days, the Turkish lira lost 20 percent against the euro. As a result, life in Turkey threatens to become unaffordable for many people.
worth less money
This depreciation of money, also known as inflation, is a direct result of actions by Erdogan who are putting pressure on the Turkish central bank to lower interest rates. That happened again last week.
As a result of lowering interest rates, borrowing money becomes cheaper and that could lead to economic growth. But the downside is that making loans cheaper also means that more money becomes available in the Turkish economy, which can cause inflation to rise sharply.
Free fall lira temporarily stopped
The free fall of the lira has now at least temporarily stopped. The value rose about 7 percent against the euro after a number of deals were signed by the United Arab Emirates to invest billions in the Turkish economy.
Mohammed bin Zayed al-Nahyan, the crown prince of Abu Dhabi, was in Ankara to ratify the agreements. Investments are being made in Turkish tech companies, among other things, and a deal was signed for cooperation in the field of ports and logistics, Reuters reports. In addition, money is being invested in energy and infrastructure.
“I look forward to exploring new opportunities for collaboration that will benefit our two nations and advance our mutual development goals,” the Crown Prince said on Twitter after the meeting.
Inflation is likely to return
The question is whether the billion-dollar deals will have a long-term positive effect on the value of the lira.
This is probably not the case, says Paul Jackson, a researcher at Invesco, a company that guides investments from large clients. The lira is likely to fall further in the coming months, he told The Guardian.
With inflation at 20 percent and house prices rising 35 percent, there is plenty of reason for concern. The central bank’s repeated cuts in interest rates will also keep inflation high, Jackson said. “That taken together means that what the president is doing is dangerous and damaging to the economy.”