The Turkish lira has suffered one of its worst days since a currency crisis three years ago after President Recep Tayyip Erdogan praised a recent rate cut and declared his country waging a “war of economic independence”.
The currency, which fell nearly 40 percent against the dollar this year, fell as much as 8.8 percent and broke through the symbolic threshold of 12 against the dollar after Erdogan used a belligerent speech to broaden his vision for the country’s economy. to set out.
At its worst, the fall on Tuesday was the most intense the lira has suffered since August 2018, when the country had a currency crisis. This has reduced its decline to about 7 percent in more recent transactions.
“It’s like a horror movie,” says Enver Erkan, an analyst at Istanbul-based Terra Investment, adding that it is difficult to say how much further the currency would fall as policymakers appear willing to expose it. to drop.
Erdogan, a lifelong opponent of high interest rates, said in a speech on Monday night that he was “pleased” that the central bank lower rates last week for the third consecutive month, despite warnings from economists that it would boost inflation, which is already running at an annual rate of 20 percent, and further destabilize the currency.
Erdogan painted a picture of a dark global conspiracy aimed at subduing Turkey and said the country would not give in to economists, “opportunists” and “global financial acrobats” asking for interest rate hikes.
The government prioritizes growth, he said, to encourage investment, production, exports and employment. “That is why we do not pay attention to the cries of the prophets of doom,” he said.
He likened the struggle to the one that the nation fought against foreign occupiers in the aftermath of World War I, which culminated in the founding of the modern Turkish republic in 1923. “With the help of God and the support of our people we will emerge victors of this war of economic independence, ”he said.
Turkey’s central bank, which experienced increasing interference from the president last month try to argue that interest rate cuts will help stabilize the declining currency and rising inflation by eradicating the country’s chronic current account deficit.
Economists warn that such logic is flawed, saying that allowing the lira to spiral runs the risk of creating hyperinflation in a country that is heavily dependent on imported energy and raw materials.
The sharp decline in the currency also threatens to further erode living standards at a time when Erdogan is already facing increasing public anger at the rising cost of basic goods.
One Turkish banker described the lira’s decline as “a policy-induced currency shock” actively chosen by the government. “The choice is clear,” he said. “They are now only implementing their strategy. This is the new approach. ”
Semih Tumen, a former deputy governor of the central bank who was among several senior officials last month fired by the president, spoke publicly for the first time since his dismissal when the currency tumbled to call on the government to “abandon this irrational experiment that has no chance of success.”
He wrote on Twitter: “We must immediately return to high-quality policies that will protect the value of the lira and the well-being of the Turkish people.”