Turkey’s economy looks like it’s headed for a big crash said the Washington Post 5 weeks ago. Things are getting worse, as Turkey’s currency, the lira, continues to plummet. Since January, the lira has fallen 40% against the U.S. dollar.
As the central bank in Istanbul attempts to diminish the impact, credit card restrictions are deployed, as this local journal describes.
- Turkey’s banking regulator has placed new limits on credit card instalments(sic) amid a currency crisis, independent news site T24 said .
- The new regulations ban the use of instalments for the purchase of jewelry, telecoms, overseas goods, food, alcoholic drinks, fuel, cosmetics, office equipment, and gift cards.
- Credit cards can now only be used for a maximum of 12 months’ worth of instalments for the purchase of goods or services, or borrowing money.
- Only three months’ worth of instalments will be possible for electronic goods, while computers and travel payments will be limited to six months and payments relating to health or taxation will be limited to nine months.
- The new regulations also limit the timeframe over which debt restructuring that can take place for credit card debt.
European and Asian stock markets feel the rumble and the International Monetary Fund estimates that Turkey’s foreign debt is now 50% of the GDP according to CNBC.
- The Turkish economy has been “overheating” with inflation — at 16 percent in July — way exceeding the central bank’s target of 5 percent.
- Raising interest rates could have helped to stem such a massive increase in consumer prices: Higher rates tend to attract foreign investors, who would need the lira to buy Turkish assets.
The fiscal mess will continue to unravel. For now, cards are a minor part of the problem, though it will be interesting to see this unfold.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group