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Turkish lira hits all-time low after Erdoğan’s call for interest rate cuts

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The Turkish lira hit a record low after Turkish President Recep Tayyip Erdoğan said during a televised interview late on Tuesday that he spoke to the central bank’s new governor about the necessity of interest rate cuts in the next two months, local media reported on Wednesday.

The lira, by far the worst performer in emerging markets this year, mostly due to perceived political interference in policy, weakened more than 4 percent to a record low of 8.88 to the US dollar before recovering some ground to stand at 8.63 at 0527 GMT.

“I’m behind the same claim on this issue — I even spoke to the central bank governor today — we certainly need to lower interest rates. For that, we need to see July, August, for interest rates to start coming down,” Erdoğan said during a live interview with state broadcaster TRT Haber, claiming that lowering rates would lift the burden on investment.

Turkey’s monetary credibility has been eroded due to the president’s frequent calls for lower borrowing costs and his abrupt removal of three central bank chiefs in less than two years, becoming more vulnerable to high inflation and financial crisis.

The lira has lost 16 percent since mid-March, when Erdoğan, who describes himself as an “enemy of interest rates,” ousted Naci Ağbal, a hawkish and well-respected central bank governor, and installed Turkish banker and politician Şahap Kavcıoğlu, who is a like-minded critic of tight policy.

The new bank governor has since kept the policy rate steady at 19 percent, though analysts expect a cut in the third quarter. Inflation has risen above 17 percent and the plunging currency adds price pressure via Turkey’s heavy imports.

“The lira started to plummet [against the dollar] before he was able to finish the sentence,” Ali Babacan, leader of the opposition Democracy and Progress Party (DEVA) who is also Turkey’s former economy minister, said in a tweet, referring to Erdoğan’s remarks on the interest rate cuts.

DEVA deputy chairman Mustafa Yeneroğlu also criticized the president, saying that it was as if Erdoğan had sworn to bring the country’s economy down.

Meanwhile, Erdoğan also said in Tuesday’s interview that the parliamentary system was a thing of the past for Turkey.

“Turkey cannot find peace in the multi-party system. … Our citizens don’t want to go back to the days of coalition governments,” he claimed.

An Ankara-based MetroPoll survey showed in January that 57.7 percent of respondents think Turkey should return to the parliamentary system, while only 34.5 percent think it should keep the executive presidential system, a significant decline in the nationwide support for the executive presidential system that was adopted in Turkey with 51.4 percent of the vote in a 2017 referendum.

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