Turkish Citizens Rush to Secure Dollar, Gold, and Stocks Amid Soaring Inflation and Devalued Lira

Hidden in a shadowy alley within Istanbul's bustling Grand Bazaar, a group of men can be seen huddled together, energetically talking on their phones, gesturing, and pacing anxiously.

This unique marketplace, resembling a more informal and lively stock exchange, is where local traders in Istanbul gather to trade in valuable metals and currencies. Currently, the sought-after items here are dollars and gold, with Turkish lira taking a backseat in popularity.

"According to Adnan Kapukaya, a trader and market expert, our money is losing its value rapidly. This is because people no longer trust the Turkish lira due to the persistent high inflation rates."

"Inflation in Turkey remains alarmingly high, with official figures indicating a 67% increase in prices last month compared to February 2023. Unofficial estimates suggest that the actual number may be even higher, possibly exceeding 100%. Despite the Turkish central bank raising interest rates drastically to 45% in January from a low of 8.5% a year ago, inflation has not shown signs of easing."

Savers are still losing money to inflation, even at the current rate. To protect their savings, individuals are turning to the gold markets of the Grand Bazaar. Omer Tozduman, a gold dealer, notes that people are bringing their modest savings or even a suitcase full of cash to invest in gold.

In the past, individuals would invest in real estate or land. However, due to the high interest rates, they are now either depositing their money in the bank to earn high interest or purchasing gold, as stated by Tozduman.

Many people are investing in stocks, contributing to a market boom that trails only behind Japan this year.

In central Istanbul, you can find numerous foreign exchange booths and gold sellers. It seems like there is one on almost every block. Many of them advertise "no commission" and if you have dollars, you can exchange them without any additional fees. Exchange offices near the historic bazaar are even offering to buy dollars at rates better than the market rate to keep up with the high demand.

A popular middle-class shopping district in Istanbul, pictured on March 7, 2024.

A popular middle-class shopping district in Istanbul, pictured on March 7, 2024.

Ahmet Basaran Kolay, the owner of an exchange office near the bazaar, mentioned that customers mainly purchase lira for immediate expenses. He explained that while some buy lira out of necessity, many prefer to invest in dollars to secure their savings.

Melek Alkes, a preschool teacher in the Uskudar neighborhood of Istanbul, finds it difficult to save money. Despite a modest increase in her wages over the past year, it has not kept up with the inflation rate. As a result, she is now considering finding another job to help manage her credit card payments. In fact, her paycheck goes towards paying the interest on her credit card, which she then uses to make purchases for the month. Unfortunately, her mother and sister, who are both pensioners, are also facing financial struggles.

Erhan Yeygul is a well-dressed amateur soccer player with an office job. He shares that his young family is struggling with credit card debt.

Despite working two jobs, Erhan still finds it difficult to make ends meet. He mentions, "You can say ‘you are young, you can work,’ but I do work and I still can’t make a living." In addition to his regular income, he uses the bonus he earns from playing soccer to provide for his children and fill up the refrigerator.

Stock market boom

Kerim Rota, an independent economist, believes that depending on credit cards is not a sustainable option. He points out that the central bank recently raised the credit card rates to 5% per month, which amounts to a staggering 80% annual rate. According to him, this is simply unaffordable for the average person.

Local elections, which are highly contested, are scheduled to take place on March 31. Following the elections, there are some challenges ahead. The Turkish government, under President Recep Tayyip Erdogan, raised the minimum wage to approximately $525 per month in January, aiming to assist the poorest citizens. However, some, like Rota, believe that this move has actually contributed to worsening inflation.

Rota expressed, "In order to break this cycle, proactive measures need to be taken. It remains to be seen post-election whether the government is committed to effectively addressing inflation. With no upcoming elections in Turkey for the next four years, now is an opportune moment for the government to focus on improving the situation."

President Recep Tayyip Erdogan speaks on January 2, 2024.

President Recep Tayyip Erdogan speaks on January 2, 2024.

In late 2021, when high inflation became a problem, Rota believes that Erdogan's decision to lower interest rates actually made the situation worse. He predicts that it will take about six months for Turks to regain trust in the lira and for the recent significant interest rate hikes to have an impact on lowering inflation. Turkey recently appointed a new central bank governor, Fatih Karahan, who took over last month following the sudden resignation of his predecessor. Karahan, who previously worked as Amazon's chief economist, maintained the interest rate at 45% in February.

Turkey's stock market has stood out as a bright spot amidst economic challenges. The BIST-100 index has surged by 19.8% in 2024, outperforming the S&P 500's 8.5% increase. In fact, it is the second best performing major index globally, trailing only Japan's Nikkei 225.

One of the driving forces behind Turkey's market gains is the enthusiasm of local retail investors. They have been eagerly purchasing stocks to safeguard their money from the impact of inflation. Jacob Grapengiesser, the CEO of East Capital, a firm that specializes in emerging markets, described this trend as a "frenzy."

"If you are in a high-inflation environment and you have money in your account, it's usually not a good idea to save," explained a financial expert in an interview with CNN.

Another economist, Jonas Goltermann from Capital Economics, attributed roughly half of the recent gains in the BIST-100 to the weakening of the lira. He mentioned that inflation helps boost domestic revenues for Turkish companies, and a devalued currency means that exporters earn more lira for every dollar or euro they make overseas.

Turkey has been performing well this year, according to a statement made to CNN. The country's commitment to a more orthodox approach in managing its economy has boosted investor confidence.

With a young population and strong trade agreements with Europe, Turkey is also connected to the fast-growing economies in the Middle East. This makes Turkey a promising investment opportunity with a positive story to tell.

Isil Sariyuce in Istanbul contributed to this article.

Editor's P/S:

The financial situation in Turkey is concerning, with inflation rates soaring and the value of the Turkish lira plummeting. This has led to a loss of trust in the currency, prompting individuals to seek alternative investments such as gold and dollars. The stock market has also experienced a boom, with retail investors eager to protect their savings from inflation.

The economic challenges faced by Turkey are multifaceted, including high interest rates, rising credit card debt, and a minimum wage increase that has contributed to inflation. The government's decision to lower interest rates in late 2021 has exacerbated the situation, and it is estimated that it will take several months for the recent interest rate hikes to have an impact on lowering inflation. The appointment of a new central bank governor and the commitment to a more orthodox approach in managing the economy have boosted investor confidence, but it remains to be seen whether the government will effectively address inflation post-elections.