Turkey’s beleaguered lira extended a rout after Turkish President Recep Tayyip Erdoğan once again called for aggressive interest rate cuts to deal with inflation.
The lira weakened by more than 8 percent to hit a record low of 13.96 per dollar late on Tuesday. It later recovered to trade up 0.3 percent at 13.43 per dollar at 10:58 a.m. local time on Wednesday.
Erdoğan said there was no turning back from a policy of cutting interest rates to deal with inflation of almost 20 percent and to boost jobs and exports.
“We will see that the interest rates will fall markedly and hence there will be an improvement in the exchange rate before elections,” he said in an interview with state-run TRT television.
Erdoğan and his governing Justice and Development Party (AKP) are grappling with a slump in public support ahead of presidential and parliamentary elections due in June 2023. Opinion polls show that Erdoğan would lose his seat to nearly all of his likely opponents. Last week, Turkey’s largest opposition parties called for snap elections, saying Erdoğan was leading the country towards economic ruin.
The lira has lost about 45 percent of its value this year and fell almost 30 percent against the dollar in November alone after the central bank lowered interest rates for a third successive month. The benchmark rate stands at 15 percent compared with annual consumer price inflation of 19.9 percent. The bank has said there is probably room for another cut in December.
“There is no turning back,” Erdoğan said. “Turkey will not live in the trap of exchange rates, inflation and interest rates.”
Chasing lower interest rates, Erdoğan has sacked three central bank governors since the summer of 2019 and replaced most of its monetary policy board by presidential decree. The central bank next meets to decide on rates on Dec. 16. November inflation data is due on Friday.
“I think we are seeing Erdoğan Unchained,” Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London, said in comments on Twitter. “The Emperor without Clothes, no one around him left to tell the truth to power, that his policies are taking the country’s economy towards an iceberg at full speed ahead. Disastrous economic policy settings.”
Consumer price inflation in Turkey may approach 30 percent in the coming months, Phoenix Kalen, a strategist for French bank Societe Generale, said in a report to clients last week.
Faced with higher inflation and the tumbling lira, Turks could front-load their purchases, exacerbating price pressures brought on by global supply constraints, economists say. Others could exchange their liras for foreign currency, gold or cryptocurrency, they say.
Turkey’s banks should be wary of their customers using loans to purchase cryptocurrencies or to engage in transactions that pull capital outside of the financial system, the banking regulator said in a letter to bank executives, Bloomberg HT television reported on Tuesday.
Ahval