The beleaguered Turkish lira weakened to a record low on Tuesday, losing 13 percent against the US dollar after President Recep Tayyip Erdoğan defended recent sharp cuts in interest rates by the central bank, vowing to succeed in his “economic war of independence,” according to Turkish media reports.
“I reject policies that will weaken our country and condemn our people to unemployment, hunger and poverty,” Erdoğan said after a cabinet meeting on Monday.
He said the government was determined to “do the right thing for our country and people” through an economic policy that focuses on investment, production, employment and exports instead of the “vicious circle of high interest rates-low exchange rates.”
“We know what we’re doing with this policy and what we’ll get as a result,” he added.
Erdoğan’s statements caused the lira to plunge to a record low, trading at 13.50 to the dollar and 15.20 to the euro on Tuesday afternoon. The currency, which has lost a third of its value this year, shed more than 10 percent of its value in a day, Turkish media reports said.
Erdoğan said for the first time in its history, Turkey had had the opportunity to pursue an economic policy that suits its needs.
“We’ll emerge victorious from this economic war of independence. … I always say that interest rates are the cause, inflation the consequence. This is based on the lessons we learned from what our country has experienced so far,” Erdoğan said.
The president was referring to Turkey’s War of Independence, which was fought between 1919 and 1923 and led to the foundation of the Turkish Republic on the ashes of the Ottoman Empire under the leadership of Mustafa Kemal Atatürk.
Under pressure from Erdoğan, the central bank cut its policy rate last Thursday by 100 basis points to 15 percent, well below inflation of nearly 20 percent, and signaled further easing.
The bank has now slashed rates by 400 basis points since September in what many analysts say is a risky policy mistake. Société Générale said it would need to deliver an “emergency” hike as soon as next month.
Erdoğan is widely criticized for subscribing to the unorthodox belief that high interest rates cause high inflation instead of slowing it down.