The Turkish lira’s freefall is shattering all kinds of records as President Recep Tayyip Erdogan’s intensifying campaign for lower interest rates plunges the country deeper into crisis and declared that his country was fighting an “economic war of independence”.
The currency fell 15 per cent on Tuesday, plunging past 13 per dollar for the first time ever. The lira’s 11-day losing streak is now the longest in 20 years, and in November alone, it’s lost almost a third of its value.
The latest selloff came after Erdogan defended his demands for lower borrowing costs that have driven up prices and frustrated investors. They complain monetary policy is becoming increasingly irrational and unpredictable in a country where the president’s influence runs deep. While most central banks are talking of tightening policy as the global recovery fuels inflation, Turkey has slashed 4 percentage points off borrowing rates since September.
“Either we were going to give up on investments, production, growth and employment by keeping to the understanding that has prevailed in our country for years, or we were going to engage in a historic struggle in line with our priorities,” Erdogan said. “As always, we preferred the struggle.”
“We are determined to do the right thing for our nation,” he continued. “We encourage investment, production and exports. ... We protect employment. ... We care about growth.”
“For investors, Erdogan’s comments mean one thing: There will be no one there for them when inflation continues to take a toll on their assets,” said Ima Sammani, an FX market analyst at Monex Europe.
“Erdogan’s comments can largely be seen as abandonment of caution and a sign to markets that the easing cycle is unlikely to end anytime soon.” Erdogan weighed in late on Monday to defend the measures that met near-universal criticism from economists and even insiders, saying they were part of a longer-term shift that priorities exports and job creation.
Erdogan, whose popularity is at an all-time low ahead of elections in 2023, looms large over the central bank. He’s sacked governors who failed to heed his pressure, evoked religion to justify lower rates and poured scorn on the “vassal economists” who question his unorthodox mantra that high borrowing costs are the cause of inflation rather than a brake on price gains.
“It’s as if they put a child in charge of a nuclear power plant,” said Kerim Rota, head of economic policy at opposition Future Party, criticising Erdogan’s economic policies. Speaking on opposition Halk TV, Rota, a former banker, said millions of Turks who earn liras will lose with this policy. The lira’s slump has prompted institutions including Societe Generale and Goldman Sachs to predict rate hikes in the first half of 2022, though some say the threshold may not be reached that fast.
Erdogan’s determination to drive down borrowing costs has pushed Turkey into new territory, with many analysts questioning whether the fallout will affect his grip on power. The currency’s rapid depreciation drives up the cost of goods for ordinary citizens, with his own working class base clobbered the hardest, and poses risks to the banking sector.
Opposition leader Kemal Kilicdaroglu, whose party won control of Istanbul and Ankara in local elections in 2019, on Tuesday called Erdogan “a fundamental national security issue for the Republic of Turkey.” “You have turned the Turkish lira into a discredited currency,” he said. “You have put our economic independence up for sale.” Last week, Erdogan used Islamic proscriptions on usury to hit back at critics concerned the easing cycle would exacerbate inflation, which neared 20 per cent last month. (With inputs from AP)