Turkey’s lira slumped to a fresh record low beyond 15 per dollar as investors bet that the central bank would lower interest rates for a fourth-straight month at a meeting later on Thursday.
The lira fell to as low as 15.28 per dollar in morning trading in Istanbul, taking losses this year to more than 50 percent. The currency was trading down 2.6 percent at 15.17 per dollar as of 10:28 a.m. local time.
Turkey’s central bank, acting on the orders of President Recep Tayyip Erdoğan, is expected to cut its benchmark interest rate to 14 percent from 15 percent at today’s meeting, according to the median estimate of economists polled by Bloomberg and Reuters. Policymakers are cutting borrowing costs despite surging inflation – the consumer price inflation rate rose to 21.3 percent in November and may hit more than 25 percent this month.
Most of the lira’s losses this year have come since Nov. 18, when the central bank last cut interest rates by one percentage point to 15 percent. The lira has dropped by over 30 percent against the dollar since the decision.
Lira devaluation may get much worse should the central bank lower interest rates again, Robin Brooks, chief economist at the Institute of International Finance (IIF), the trade group of the global financial services industry, said on Wednesday.
Erdoğan, who has sacked three central bank governors since the summer of 2019, insists that Turkey can slow inflation by cutting interest rates, a view that jars with conventional economic theory that says borrowing costs can be raised to tackle inflation. He has also replaced most of the members of the central bank’s rate-setting committee.
The president has said there is no stepping back from his government’s low interest rate policies. The government will win an “economic war of independence” through surging exports, a current account surplus, and a strong manufacturing base, he said after last month’s rates decision.
The central bank is expected to announce its decision on interest rates at 2 p.m. local time.
In a presidential decree issued at midnight on Wednesday, Erdoğan said he had fired four senior officials of the Treasury and Finance Ministry. The departing officials included deputy ministers Ercan Gül and Hamdi Yıldırım, and two general managers – the head of public borrowing and the chief of the economic programmes and research department.
Erdoğan is facing increasing criticism about his economic policies from opposition politicians and the public. Some Turks have begun queuing for bread at government-subsidised bakers to help make ends meet, while many are questioning the accuracy of official inflation statistics, pointing to jumps in the cost of food and other necessities.
The president was expected to announce a substantial hike in the net monthly minimum wage of 2,826 liras ($187) in a speech later on Thursday. About half of workers in Turkey earn a salary at or near the minimum wage, according to a study by labour confederation DİSK.
Ahval