Turkey’s lira weakened towards an all-time low against the dollar on Monday after President Recep Tayyip Erdoğan said he would not compromise on lowering interest rates to help boost economic growth and slow inflation.
The lira fell to as low as 13.89 per dollar. It was trading down 0.6 percent at 13.78 per dollar at 10:50 a.m. local time in Istanbul. The currency hit a record low of 13.97 per dollar on Friday.
“God willing, we will stabilise foreign exchange rates in a short period,” Erdoğan said during a speech in the eastern city of Siirt on Saturday.
“Tayyip Erdoğan said low interest rates yesterday, says low interest rates today and will say low interest rates tomorrow,” he said. “I will never compromise on this because interest rates are a malady that make the rich even richer, and the poor even poorer.”
Turkey’s central bank said on Friday it had intervened in the currency markets to support the lira in the second such statement in three days. The lira has lost about 45 percent of its value this year and fell by 30 percent against the dollar in November alone.
The currency is sliding after the central bank, acting on Erdoğan’s orders, cut interest rates to 15 percent from 19 percent since September even as inflation accelerated, prompting investors and some local deposit holders to sell the lira on concerns about financial instability.
“Hopes of an orthodox policy response have been dashed,” Liam Peach, emerging markets economist at Capital Economics in London, said in a report on Friday.
“So long as strains in the banking sector stay limited, we suspect officials will stay the course,” he said. “It looks like the central bank will push ahead with another interest rate cut at December’s MPC meeting. Against that backdrop, the lira will struggle to recoup its lost ground as other EM currencies have done following similar sharp falls.”
Turkey’s consumer price inflation rate rose to 21.3 percent in November, the highest level since a currency crisis three years ago, from 19.9 percent the previous month, the Turkish Statistical Institute said on Friday. Annual producer price inflation gained to 54.6 percent from 46.3 percent.
“We will always be there for manufacturers and employers with low interest rates,” Erdoğan said. “We’re also starting to enforce precautions safeguarding workers against inflation.”
The chances of the central bank keeping interest rates on hold at a meeting on Dec. 16 are increasing, governor Şahap Kavcıoğlu told investors last week, the BloombergHT television channel said on Monday, citing a report by Credit Suisse analysts who attended the meeting.
Erdoğan has sacked three central bank governors since the summer of 2019 due to differences over monetary policy. He claims that high interest rates lead to faster inflation, a view that contradicts with conventional economic thinking.