Why the Turkish Lira Has Depreciated

The Turkish lira's sharp depreciation since ~2018 stems from intertwined factors:

1. Unorthodox Monetary Policy: President Erdoğan's insistence on lowering interest rates despite high inflation—contrary to standard economics—eroded credibility and triggered capital flight.
2. High Inflation: Officially 65%+ (2024); independent estimates higher. Destroys purchasing power and deters lira holding.
3. Large Current Account Deficit: Reliance on short-term foreign borrowing; vulnerable to sentiment shifts.
4. Geopolitical Risk: Syria intervention, tensions with EU/US, unpredictable policy-making scare investors.
5. Dollarization: Residents and firms convert savings to USD/EUR/Gold, accelerating lira sell-off.
6. Low Reserves: Net reserves (ex-swaps) often negative; limited firepower to defend currency.

Conventional rate hikes (2023–24) slowed but haven't reversed the slide; structural rebalancing remains incomplete.