The Turkish lira plunged to a new record low on Tuesday, shedding 5% after President Recep Tayyip Erdogan defended recent sharp interest rate cuts and vowed to win his “economic war of independence”.
The lira fell to 11.9990 to the dollar. The lira recorded during trading 11.8200 against the dollar. The currency has lost 38% of its value this year, including a 17% drop since the beginning of last week.
The central bank cut the interest rate last Thursday by 100 basis points to 15% under pressure from Erdogan, which is much lower than the inflation rate of about 20%, and indicated a further cut.
The central bank has cut interest rates by a total of 400 points since September in what analysts described as a serious policy mistake in light of the deeply 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 that includes Finance Minister Lotfi Alwan is also affecting the markets.
Erdogan defended the policy at a news conference late on Monday, saying that tightening monetary policy would not reduce inflation.
After a cabinet meeting, he said, “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.