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Here’s why Erdogans’ inflation and interest rate disdain pummeled the turkey currency

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Updated November 23, 2021 2:54 PM EST

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The Turkish lira collapsed to an all-time high on Tuesday after President Recep Tayyip Erdogan doubled down on his unorthodox plan to fight rising prices with lower interest rates, fueling concerns that governments, appearing to despising runaway inflation could intensify Turkey’s currency problems for years.

Highlights

The pound fell 9% on Tuesday to fall to $ 0.08, or 13.45 per US dollar, bringing losses to over 19% over the past week and 23% over the past month.

Erdogan triggered the historic one-day plunge on Tuesday, after a speech in which he defended recent cuts in Turkish central bank interest rates and vowed to win an economic war of independence.

In a recent note, analysts at JPMorgan blamed the exponential decline of the pound on Turkish central banks for three consecutive interest rate cuts, which Erdogan hailed in an attempt to boost exports, investment and jobs, much like the reasoning behind the policy of the US Federal Reserve which kept interest rates at close to zero levels during the pandemic and most of the past decade.

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However, Turkey’s aggressive strategy clashed with traditional monetary policy using higher interest rates to curb rising prices: the nation’s inflation rate. flew to nearly 20% in October, three times the highest inflation in decades that sparked widespread economic concerns in the United States

Although higher rates are used to curb inflation, Erdogan has long expressed his contempt for interest rates, which fell from 20% to 15% after recent rate cuts, and even called they are the mother and father of all evil because they prevent economic growth.

In a statement Thursday morning, the Central Bank of the Republic of Turkey noted he had no commitment on exchange rates and blasted the fall in the value of the lira as unrealistic and completely detached from economic fundamentals, saying he would only intervene in the event of excessive volatility.

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2/ https://www.forbes.com/sites/jonathanponciano/2021/11/23/turkish-lira-historic-crash/

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