The Turkish lira plunged to a new record low today by 5% after President Recep Tayyip Erdogan defended recent sharp interest rate cuts and vowed to win the “economic war of independence”.
The Turkish currency fell during today’s trading to 11.9990 lira to the dollar. The currency has lost 38 percent of its value this year, including a 17 percent decline since the beginning of last week.
The Turkish Central Bank cut the interest rate last Thursday by 100 basis points to 15 percent under pressure from President Erdogan, which is far below the inflation rate of about 20 percent, and indicated a further cut.
The central bank has reduced interest rates by a total of 400 points since September 2021, in what analysts described as a serious political mistake in light of the profound negative results and given that all other central banks have begun or are preparing to tighten fiscal policy.
Analysts said an emergency rate hike would be necessary soon. Speculation about a cabinet reshuffle involving Finance Minister Lotfi Alwan is also affecting the markets.
Erdogan defended the policy at a news conference late on Monday, saying that tighter monetary policy would not reduce inflation.
He said after a cabinet meeting, “I reject the policies that lead to the deflation and weakening of our country and condemn our people to unemployment, hunger and poverty,” which led to the lira’s decline late in the day.
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