The Turkish lira suffered one of the worst days since the currency crisis three years ago, after President Recep Tayyip Erdogan praised the recent interest rate cut and announced that his country is fighting a “war of economic independence.”
After Erdogan used a combative speech to elaborate on his vision for the country’s economy, the currency, which has fallen by nearly 40% against the U.S. dollar this year, plummeted by 8.8%, breaking the symbolic threshold of 12 U.S. dollars against the U.S. dollar.
In the worst-case scenario, Tuesday’s drop was the biggest drop in the lira since August 2018, when the country experienced a currency crisis. In recent transactions, its decline has been reduced to around 7%.
“It’s like a horror movie,” said Enver Erkan, an analyst at Istanbul-based Terra Investment, adding that given that policymakers seem willing to let it depreciate, it is difficult to say that the currency will How much further down.
“This is the inevitable result of Erdogan’s war on interest rates,” said Uday Patnaik, Director of Emerging Market Debt at Legal & General Investment Management. “The things that prevent free fall are some signs of the Independent Central Bank of Turkey. But the prospects for this are not great. Erdogan is the kind of person who likes to continue to work harder.”
Erdogan, who has been opposed to high interest rates for life, said in a speech on Monday evening that he was “happy” that the central bank cut interest rates for the third consecutive month last week, even though economists warned that this would trigger inflation. Speed runs and further destabilizes the currency.
Erdogan portrayed a dark global conspiracy aimed at conquering Turkey. He said that the country will not succumb to economists, “opportunists” and “global financial acrobats” who call for interest rate hikes.
He said the government is prioritizing growth to encourage investment, production, exports and employment. “That’s why we ignore the clamor of doomsdayists,” he said.
He compared this struggle with the struggle between the country and foreign occupiers after the First World War, and finally established the modern Republic of Turkey in 1923. “With God’s help and the support of our people, we will rise to victory from this economic war of independence,” he said.
The central bank of Turkey faced increasing intervention by the president last month and tried to argue last month that by eliminating the country’s long-standing current account deficit, interest rate cuts would help stabilize the plummeting currency and soaring inflation.
Economists warned that this logic was flawed and stated that in a country that relies heavily on imported energy and raw materials, allowing the lira to spiral upwards could lead to hyperinflation.
At a time when Erdogan is already facing increasing public anger due to rising costs of basic commodities, the sharp decline in currency may also further erode living standards.
A Turkish banker described the lira’s decline as a “currency shock triggered by policymakers” actively chosen by the government. “The choice is clear,” he said. “They are just implementing their strategy now. This is a new approach.”
Former deputy central bank governor Semih Tumen, one of several senior officials fired by the president last month, made his public speech for the first time after being fired, calling on the government to “abandon this kind of situation” because of the collapse of the currency. Irrational experiments with no chance”. success”.
He wrote on Twitter: “We need to immediately restore high-quality policies to protect the value of the lira and the well-being of the Turkish people.”