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Turkish economy faces crisis ahead of election

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Turkish economy faces crisis ahead of election

Shoppers in a Turkish bazaar
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As Turkey heads towards an election in June it is facing a collapse in its currency that threatens to precipitate an economic crisis.

Since the start of the year, the Turkish lira has plunged about 20 percent against the U.S. dollar, although it rallied slightly this week after an interest rate hike by the Turkish central bank.

"There are increasing signs that the Erdogan government is tightening its grip on the running of not just Turkey, but I think economic policy more generally with the central bank certainly in the government's focus," said Commerzbank global financial economist Peter Dixon. "And you know I think markets are beginning to take fright at the extent of government interference over certainly central bank policy. That's certainly been one of the factors which has caused the lira to, you know, to lose ground".

The central bank hiked the rate from 13.5 to 16.5 percent. President Erdogan has made no secret of wanting to take control of interest rates, which he describes as the "mother of all evil."

But the falling lira and rising inflation are affecting the spending power of ordinary people who of course are also voters.

"Of course, we lost money," said shopkeeper Cuneyt Sipahi. "Since we pay our rents in U.S. dollars and we are in gold dealing, the rents are usually calculated based on U.S. dollars and gold prices. Last year, we were around 3,506 dollars, This year, it will be 5,100 dollars."

The hike in interest rates was an attempt to halt inflation, but analysts have described it as too little, too late.