Istanbul/London CNN —
In a dimly lit alley just inside Istanbul’s Grand Bazaar, dozens of men crowd together, shouting, waving, frantically talking on cellphones and pacing nervously.
This “permanent market” (a low-rent version of the chaotic stock exchange) is where Istanbul’s traders come to trade precious metals and currencies. These days, what they’re after is dollars and gold. Turkish lira, not so much.
“Right now, our money is almost worthless. People don’t trust the Turkish lira anymore because they don’t see the inflation rate coming down,” explained trader and market expert Adnan Kapukaya.
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Türkiye’s inflation rate remains very high. Official figures show prices rose 67% last month compared to February 2023, but unofficial estimates suggest the real figure is more than 100%. This is despite Turkey’s central bank raising interest rates to an eye-popping 45% in January from a low of 8.5% a year ago.
But even at that pace, savers are still losing money to inflation. So to protect their savings, people are showing up at the Grand Bazaar’s gold market with all the money they have — either little savings or, in some cases, suitcases full of cash, to meet the gold dealer’s omelette.・Mr. Tozduman says.
“People used to buy property and land, but now interest rates are so high that they put their money in banks or buy gold (to get high interest rates),” he said. .
Other companies are also piling up inventories, fueling a market boom that is second only to Japan this year.
Currency exchange booths and gold shops are dotted throughout central Istanbul, and in some areas, it seems like there are currency exchange booths and gold shops on almost every block. Many sites advertise “no commissions”, but there are actually no commissions if you have the money. Most of the exchange offices in and around the historic bazaar are offering to buy dollars at even better rates than the current market rate to meet the surge in demand.
Dilara Senkaya/Reuters
Istanbul’s popular middle-class shopping street photographed on March 7, 2024.
Ahmet Basaran Koray, owner of a currency exchange office just outside the bazaar gate, said people only buy lira when they need it. “Let me say this: People who buy liras do so because they need to spend them, but generally people want to buy dollars to invest and secure their savings.”
That is, if she has any savings. At a market in the Uskudar district on Istanbul’s Asian side, kindergarten teacher Melek Arkez burst out in laughter when asked what currency she keeps her savings in.
“I can’t leave anything behind. I can’t save money,” she says. Her salary has increased a little over the past year, but it’s nowhere near the rate of inflation. She is now looking for another job to manage her credit card payments. She says her paycheck goes toward interest on her credit card, and she uses that money to buy things for the month. Her mother and her sister are both pensioners, but she is also struggling.
So is Erhan Eigle, a smartly dressed amateur soccer player who also holds an office job. He says his young family has fallen into a credit card trap.
“Some people might say, ‘You’re young, you can work,’ but I work, but I still can’t make a living. I have two jobs,” he says. “I use the bonuses I earn from playing soccer to buy things for my kids and fill up the fridge.”
Independent economist Kerim Rota suggests relying on credit cards is unsustainable. “The central bank raised interest rates on credit cards last week and now it’s 5% per month. (That) means 80% per annum…nobody can afford that.”
Closely contested local elections are scheduled to be held on March 31st. According to Rota’s numbers, a bitter pill lies ahead. The government of Turkish President Recep Tayyip Erdoğan doubled the minimum wage in January from a year earlier to about $525 a month to support the lives of Turkey’s poorest citizens. But Rota believes it has made inflation even worse.
“We have to do something to break that cycle. So whether the government is serious about fighting inflation will be known after the elections. But it looks like there will be no elections in Turkey for the next four years. “This is a very good time for the government to improve the situation,” he said.
Dilara Senkaya/Reuters
People wait in line outside a money exchange office in Istanbul’s Grand Bazaar on March 7, 2024.
When high inflation took hold at the end of 2021, Erdogan’s unconventional approach of lowering interest rates in response made matters worse, Rota said. He now believes it will take another “tough” six months for Turks to regain confidence in the lira and for the recent dramatic rate hikes to take effect and inflation to start falling. Turkey’s new central bank governor, Fatih Karahan, was appointed last month following the abrupt resignation of her predecessor. Callahan, Amazon’s former chief economist, kept interest rates unchanged at 45% in February.
Through all the economic woes, Turkey’s stock market has been a rare bright spot. The company’s benchmark BIST-100 index is up 19.8% so far in 2024, outpacing the 8.5% gain for the S&P 500 over that time. This makes it the second best performing major index in the world after Japan’s Nikkei Stock Average.
Some of Turkey’s gains will be made to preserve the value of cash, which has been hit by inflation, said Jacob Graepengieser, CEO of East Capital, an asset management firm specializing in emerging markets. It is said that this was brought about by the “enthusiasm” of local individual investors who were buying up stocks.
“When inflation is high, if you have money in your account, you usually don’t want to save it,” he told CNN.
Meanwhile, Jonas Golterman, deputy chief market economist at Capital Economics, attributes “about half” of the BIST 100 index’s recent gains to the weakening Turkish lira. He said inflation boosts domestic revenues for Turkish companies and a weaker currency means exporters receive more lira for every dollar and euro they earn abroad.
Still, “even taking that into account, Turkey is doing pretty well this year,” he told CNN, adding that investors are increasingly confident that Turkey will stick to a more orthodox approach to managing the economy. .
He said Turkey has a young population, is linked to European economies through trade deals and is exposed to “the fast-growing economies of the Middle East.” “You can tell a very positive story about Türkiye.”
Isil Sariyuce in Istanbul and Hanna Ziady in London contributed to this article.
