ISTANBUL – The Turkish lira plunged to record highs on Tuesday after President Recep Tayyip Erdogan maintained his support for interest rate cuts, warning his country was in a “war for economic independence.”
The Turkish currency traded at over 13 lire to the dollar, a decline of 15 percent, before recovering slightly from the historic decline.
Turkey faces the worst currency crisis since August 2018, when the pound’s value hit historic lows after a row with then-US President Donald Trump.
Turkey’s central bank bowed to Erdogan’s pressure on Thursday and cut its key rate from 16 to 15 percent despite rising inflation and a rapidly depreciating currency.
“Traders were finally overthrown and completely lost patience with the policies of the central bank,” Craig Erlam, senior market analyst at OANDA, told AFP.
“There is a reason central banks are independent and that is what happens when the gap is crossed. A perfect storm of politically motivated monetary policy, complete disregard for inflation and other central banks adopting a more reasonable approach, “he said.
Erdogan, a staunch opponent of high interest rates, has always built his popularity on a reputation for forging strong economic growth and improving the incomes of families across the country.
He is known for his unorthodox belief that high interest rates cause inflation instead of helping to pack it down.
The Turkish leader was defiant and defended current policies in a speech to the nation after a cabinet meeting on Monday.
“We see the game played by those on currency, interest and price hikes… and show our willingness to pursue our own game plan,” he said.
“We will emerge victorious from this war of economic independence with the help of Allah and our people.”
-‘Admit you’re wrong’-
The pound has lost more than 40 percent of its value against the dollar since the start of the year and the annual inflation rate has reached nearly 20 percent, four times the government’s target.
“Surely someone in the palace has the guts to slap Erdogan on the shoulder and say, ‘Hey man, you really fucked up,'” BlueBay Asset Management economist Timothy Ash said in a statement. -mail to customers.
“’Admit you were wrong, step aside and let someone who knows what they’re doing run the CBRT (central bank),” he said.
The central bank has cut its key rate by 400 basis points to 15% since August.
Analysts believe the blizzard of economic woes in the country could put pressure on the president as he prepares for the 2023 election amid signs of consolidation among the opposition, which has failed until present failed to seriously challenge him.
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By Fulya Ozerkan
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