A money changer holds Turkish lira banknotes at a currency exchange office, in Ankara, on Oct. 12.CAGLA GURDOGAN/Reuters
Turkey’s lira nosedived nearly 9 per cent on Tuesday after President Tayyip Erdogan defended recent sharp rate cuts, and vowed to win his economic war of independence despite widespread criticism and pleas to reverse course.
The lira tumbled to as low as 12.49 to the dollar, plumbing record troughs for an 11th straight session. It has lost 40 per cent of its value this year, including a near 20 per cent decline since the beginning of last week. It was trading at 12.32 at 1048 GMT.
Erdogan has applied pressure on the central bank to pivot to an aggressive easing cycle that aims, he says, to boost exports, investment and jobs – even as inflation soars to near 20 per cent and the currency depreciation accelerates, eating deeply into Turks’ earnings.
Former central bank deputy governor Semih Tumen, who was dismissed by Erdogan last month, called for an immediate return to policies which protect the lira’s value.
This irrational experiment which has no chance of success must be abandoned immediately and we must return to quality policies which protect the Turkish lira’s value and the prosperity of the Turkish people, he said on Twitter.
Tuesday’s slide was the lira’s biggest fall since the previous central bank chief was dismissed in March and its 11 days of losses was its worst run since November 1999. The lira has been by far the worst performer in emerging markets this year due mostly to what analysts call reckless and premature monetary easing.
The lira tumble comes after a slide in support for Erdogan’s ruling AK Party in opinion polls and opposition calls for early elections before those scheduled for 2023. It has also intensified Turks’ concerns about the sharply rising cost of living.
Prices are rising too fast. I don’t want to buy certain products because they’ve got too expensive, said Kaan Acar, 28, a hotel executive in southern Turkey’s Kalkan resort, adding he was thinking of cancelling a trip abroad due to the rising cost.
The fault lies with President Erdogan, the AKP government, and those who for years turned a blind eye and supported them.
Investors appeared to desert the lira as volatility gauges spiked to the highest levels since March, when Erdogan abruptly sacked the hawkish former central bank chief and installed a new governor, like the president a critic of high rates.
The 10-year benchmark bond yield rose above 21 per cent for the first time since the start of 2019. Turkey’s sovereign dollar bonds fell more than 1 cent in early trading, Tradeweb data showed.