The Turkish lira fell to a record low on Tuesday after President Recep Tayyip Erdogan doubled down on his unconventional plan to fight rising prices with lower interest rates – fueling concerns that the government’s disregard for runaway inflation Turkey’s years of currency trouble could intensify.
The lira fell 9% on Tuesday to a low of $0.08, or US$13.45, having lost more than 19% in the past week and 23% in the past month.
Erdogan took a historic one-day plunge on Tuesday speech In which he defended Turkey’s central bank’s recent interest rate cuts and vowed to win the “economic war of independence”.
In a recent note, analysts at JPMorgan attributed the lira’s exponential decline to Turkey’s central bank’s three consecutive interest rate cuts, which Erdogan has welcomed in a bid to boost exports, investment and jobs. – not contrary to the logic behind US Federal Reserve policy, which has kept interest rates on near zero levels during the pandemic and most of the past decade.
However, the aggressive strategy in Turkey has come in the face of traditional monetary policy using high interest rates to curb rising prices: the country’s inflation rate. increased Nearly 20% in October—a triple-decade high inflation that has raised macroeconomic concerns in the US
Although high rates are used to curb inflation, Erdogan has long expressed contempt for interest rates, which have fallen from 20% to 15% after the most recent rate cut. , and even Called They are called the “mother and father of all evil” because they inhibit economic growth.
In a statement on Thursday morning, the Central Bank of the Republic of Turkey said It had no commitment to exchange rates and blasted the falling value of the lira as “unrealistic and completely detached from economic fundamentals”, saying it would only intervene in situations of “extreme volatility”.