After President Recep Tayyip Erdogan praised the recent interest rate cut and announced that his country is fighting a “war of economic independence,” the Turkish lira experienced a historic fall.
This year, currencies that have fallen by more than 40% against the U.S. dollar plunged as much as 15% on Tuesday—a drop that even exceeded Turkey’s currency crisis in 2018—and broke the symbolic threshold of 13 U.S. dollars against the U.S. dollar. Erdogan expounded his vision for the national economy in a combative speech. In London afternoon trading, the decline slowed to around 9%.
“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, a lifelong opponent of high interest rates, said in a speech on Monday night that he was “very happy” with the central bank. Cut interest rates Although economists warned that this would trigger inflation that is already running at an annual growth rate of 20% and further destabilize the currency, this happened last week for the third consecutive month.
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 currency devaluation has aroused the anger of Turkish opposition parties, including the opposition party led by a former ally of the Turkish president.
Ali Babakan, who has been the economic leader of the Erdogan government for many years and is now the leader of the opposition Deva Party, accused him of “bankrupting the country.”
Ahmet Davutoglu, a former prime minister and former chairman of Erdogan’s Justice and Development Party, went further. “This is no longer ignorance, this is betrayal,” he wrote on Twitter.
Turkey’s central bank faced increasing presidential intervention last month Trying to argue The interest rate cut will help stabilize the plummeting currency and soaring inflation by eliminating the country’s long-standing current account deficit.
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.”
Semih Tumen, former deputy governor of the central bank, among several senior officials last month Be fired The President made a public speech for the first time since he was fired. Because the currency plummeted, he called on the government to “abandon this irrational experiment with no chance of 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.”