In his latest defence of recent interest rate cuts that have prompted a fall in Turkey’s lira, Recep Tayyip Erdogan said he will never defend interest rate hikes or compromise on the subject.
After Erdogan’s new comments, the lira sank as much as 12.85 versus the dollar in early trade and then dipped to 12.77 by 11:50 GMT, down 4.1 percent on the day.
“Tayyip Erdogan has talked from the beginning about low-interest rates and says ‘this interest rate will come down’,” the president was quoted as telling reporters on his flight back from a visit to Turkmenistan.
“I have never defended raising interest rates, I don’t know and will not defend it … I will never compromise on this issue.”
Turkey’s lira tumbled as much as 45 percent against the dollar.
Under Erdogan’s prodding, the central bank has cut rates by 400 basis points to 15% since September and is generally anticipated to do so again in December. Economists have slammed the move, citing inflation of around 20% as justification.
Erdogan claimed that recent currency rate volatility was unrelated to economic fundamentals and that Ankara was prepared to provide the necessary support to stimulate investments through state banks.
According to NTV, he has not revised his unconventional belief that interest rates drive inflation.
“You will see, God willing, how far inflation falls before the election,” he added. “The interest rate lobbies are seething.”
The lira has lost over half of its value versus the dollar this year, falling to a record low of 13.45 on Tuesday, with much of the loss coming after Erdogan stepped up his defense of the monetary policy.
According to Goldman Sachs analysis, the lira’s selloff this month is the fifth-worst in its history.
Erdogan ordered a probe into alleged currency manipulation over the weekend, according to reports.
Erdogan entrusted the State Supervisory Council, an auditing organization that reports to the presidency, with identifying institutions that bought big sums of foreign currency and determining whether any manipulation had occurred, according to the state-owned Anadolu news agency.
This week’s market focus was likely to be on the gross domestic product data and November inflation estimates, both of which were due out on Friday.
Annual inflation is expected to touch a three-year high of 20.7 percent in November, according to a Reuters poll, while economists predict that the lira’s decline will push inflation to 30 percent next year.
The lira’s downward spiral has thrown household budgets off, restricted the supply of some drugs, and temporarily suspended sales of other goods such as cell phones.
Despite the risks, many experts and opposition MPs have urged for a quick policy reversal and elections, while the government continues to support Erdogan’s monetary stimulus campaign.
The CEO of Spain’s BBVA said on Monday that the lower currency has reduced the price of its contract to buy 50.15 percent of lender Garanti by more than 400 million euros ($450 million) at current exchange rates, as a result of the lira’s depreciation.
