The Turkish lira has seen one of its worst days since a currency crisis three years ago, after President Recep Tayyip Erdogan hailed a recent interest rate cut and said his country was waging an “economic war of ‘independence”.
The currency, which is down nearly 40% against the dollar this year, plunged 8.8% and crossed the symbolic 12 per dollar threshold after Erdogan used a combative speech to lay out his vision of the country’s economy.
At worst, Tuesday’s drop was the most intense the pound has suffered since August 2018, when the country experienced a currency crisis. It has reduced its decline to around 7 percent in more recent transactions.
“It’s like a horror movie,” said Enver Erkan, analyst at Istanbul-based Terra Investment, adding that it was difficult to say how much the currency would dive as policymakers seemed ready to simply drop it.
Erdogan, a longtime opponent of high interest rates, said in a speech Monday evening that he was “pleased” that the central bank cut rates for the third month in a row last week, despite warnings from economists that it would fuel inflation. which is already spinning at an annual rate of 20 percent and further destabilizing the currency.
Describing a dark global conspiracy to subdue Turkey, Erdogan said the country would not give in to economists, “opportunists” and “global financial acrobats” calling for a hike in interest rates.
The government is prioritizing growth, he said, to encourage investment, production, exports and jobs. “That is why we pay no heed to the clamors of the prophets of doom,” he said.
He compared the struggle to that the nation waged against foreign occupiers in the aftermath of World War I, which culminated with the founding of the modern Turkish republic in 1923. “With the help of God and the support of our people, we will emerge victorious from this war of economic independence, ”he declared.
Turkey’s central bank, which faced growing interference from the president, last month sought to argue that rate cuts would help stabilize the currency’s fall and spike in inflation by wiping out the chronic deficit of the country’s current account.
Economists warn that such logic is flawed and claim that allowing the lira to soar risks creating hyperinflation in a country heavily dependent on energy and imported raw materials.
The sharp decline in the currency also threatens to further erode living standards at a time when Erdogan is already facing growing public anger at the rising cost of basic commodities.
A Turkish banker described the slippage in the lira as “a monetary shock caused by policymakers” which had been actively chosen by the government. “The choice is clear,” he says. “They’re just implementing their strategy now. This is the new approach.
Semih Tumen, a former deputy central bank governor who was among several senior officials last month sacked by the president, spoke publicly for the first time since his dismissal as the currency tumbled to call on the government to “drop this irrational experiment that has no chance of success. ”
He wrote on Twitter: “We must immediately return to high quality policies that will protect the value of reading and the well-being of the Turkish people. ”
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