Abubakr Buleshov | 06.07.2025
Why the Turkish Lira Keeps Falling
A solid and firm national currency is crucial for maintaining a proper economic state in a country.
However, in recent years Turkish lira has gone through one of the most drastic declines among other currencies. Even though currency fluctuations are a common occurrence in the global economy, the scale of how the Turkish lira has depreciated raises deeper concerns for the people of Türkiye. Since 2021, the Turkish lira has lost significant value against major currencies, reaching a record low of 39 to the dollar. This article will explain the key reasons behind the lira’s fall, focusing on political interference in economic policy, high inflation, and Türkiye’s structural financial vulnerabilities — and consider why the currency continues to struggle despite recent attempts at stabilisation.
Over the past month, the Turkish lira has weakened by 1.49%, and is down by 22.04% over the last 12 months. Historically, the USDTRY reached an all-time high of 41.58 to the dollar in March of 2025. One of the main reasons for the Turkish lira’s fall is the political interference in the country’s economic policy.
Since the early 2020s, President Erdogan has stuck to unconventional policies, distinctly the lowering of interest rates even when inflation rose. This contradicts the standard economic theory, which advocates the standard practice of raising interest rates to reduce inflation (this ‘strategy’ is a common practice in countries such as the UK; The Bank of England also raised rates repeatedly from 2021–2024, reaching around 5.25% to counter rising food and energy prices. This helped bring inflation down from over 10%). In 2021, Erdogan dismissed the central bank governor, Naci Agbal, shortly after he raised interest rates, leading to a depreciation of the lira. Another more recent cause was the arrest of Istanbul's opposition mayor, Ekrem Imamoglu. This caused a panic among financial markets again, leading the lira to fall by 12% in a single day. 2 of these events highlight the political instability and the lack of central banks’ independence, weakening the trust in Türkiye's economic state. As foreign investors withdraw and domestic confidence in the currency falls, the value of the lira continues to decline, driven largely by political decisions rather than purely economic fundamentals.
Another major factor behind the decline of the Turkish lira is Türkiye’s continuous inflation problem and the general long-term economic problems (Dependence on Imports, High Foreign Debt, and Low Productivity and Innovation). In recent years, the annual rate of inflation has consistently remained above 30%. As the value of the lira falls, imports- such as food, fuel and raw materials- become more expensive, further increasing inflation rates. This creates a cycle: a weaker lira fuels higher prices, and higher prices weaken confidence in the currency. As previously mentioned, Türkiye imports energy (oil, gas), meaning it spends more on foreign goods and services than it earns. To do this, Türkiye borrows from abroad, often in foreign currency, which becomes harder and more expensive due to the diminished lira.
In conclusion, the decline of the Turkish lira is the result of a combination of political decisions, unorthodox economic policies, and deeper long-term structural weaknesses in Türkiye’s economy. Political interference in the central bank and the lack of consistent monetary policy have severely undermined investor and public confidence, both domestically and internationally. At the same time, high inflation, a growing dependence on imports, and a persistent current account deficit have made the currency especially vulnerable to external shocks. Ultimately, unless Türkiye restores central bank independence, controls inflation through orthodox measures, and strengthens the fundamentals of its economy, the lira is likely to remain under significant pressure in the years ahead.
However, in recent years Turkish lira has gone through one of the most drastic declines among other currencies. Even though currency fluctuations are a common occurrence in the global economy, the scale of how the Turkish lira has depreciated raises deeper concerns for the people of Türkiye. Since 2021, the Turkish lira has lost significant value against major currencies, reaching a record low of 39 to the dollar. This article will explain the key reasons behind the lira’s fall, focusing on political interference in economic policy, high inflation, and Türkiye’s structural financial vulnerabilities — and consider why the currency continues to struggle despite recent attempts at stabilisation.
Over the past month, the Turkish lira has weakened by 1.49%, and is down by 22.04% over the last 12 months. Historically, the USDTRY reached an all-time high of 41.58 to the dollar in March of 2025. One of the main reasons for the Turkish lira’s fall is the political interference in the country’s economic policy.
Since the early 2020s, President Erdogan has stuck to unconventional policies, distinctly the lowering of interest rates even when inflation rose. This contradicts the standard economic theory, which advocates the standard practice of raising interest rates to reduce inflation (this ‘strategy’ is a common practice in countries such as the UK; The Bank of England also raised rates repeatedly from 2021–2024, reaching around 5.25% to counter rising food and energy prices. This helped bring inflation down from over 10%). In 2021, Erdogan dismissed the central bank governor, Naci Agbal, shortly after he raised interest rates, leading to a depreciation of the lira. Another more recent cause was the arrest of Istanbul's opposition mayor, Ekrem Imamoglu. This caused a panic among financial markets again, leading the lira to fall by 12% in a single day. 2 of these events highlight the political instability and the lack of central banks’ independence, weakening the trust in Türkiye's economic state. As foreign investors withdraw and domestic confidence in the currency falls, the value of the lira continues to decline, driven largely by political decisions rather than purely economic fundamentals.
Another major factor behind the decline of the Turkish lira is Türkiye’s continuous inflation problem and the general long-term economic problems (Dependence on Imports, High Foreign Debt, and Low Productivity and Innovation). In recent years, the annual rate of inflation has consistently remained above 30%. As the value of the lira falls, imports- such as food, fuel and raw materials- become more expensive, further increasing inflation rates. This creates a cycle: a weaker lira fuels higher prices, and higher prices weaken confidence in the currency. As previously mentioned, Türkiye imports energy (oil, gas), meaning it spends more on foreign goods and services than it earns. To do this, Türkiye borrows from abroad, often in foreign currency, which becomes harder and more expensive due to the diminished lira.
In conclusion, the decline of the Turkish lira is the result of a combination of political decisions, unorthodox economic policies, and deeper long-term structural weaknesses in Türkiye’s economy. Political interference in the central bank and the lack of consistent monetary policy have severely undermined investor and public confidence, both domestically and internationally. At the same time, high inflation, a growing dependence on imports, and a persistent current account deficit have made the currency especially vulnerable to external shocks. Ultimately, unless Türkiye restores central bank independence, controls inflation through orthodox measures, and strengthens the fundamentals of its economy, the lira is likely to remain under significant pressure in the years ahead.
