Wednesday November 24, 2021
Turkey’s lira nosedived 15 percent on Tuesday in its second-worst day ever 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 as far as 13.45 to the dollar, plumbing record troughs for an 11th straight session, before paring some losses. It has shed 45 percent of its value this year, including a near 26 percent decline since the beginning of last week.
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 percent and the currency depreciation accelerates, eating deeply into Turks’ earnings.
Many economists called the rate cuts reckless while opposition politicians appealed for immediate elections. Turks told Reuters the dizzying currency collapse was upending their household budgets and plans for the future.
After a meeting between Erdogan and central bank Governor Sahap Kavcioglu, the bank issued a statement saying the selloff was “unrealistic and completely detached” from economic fundamentals.
There was no hint at an intervention to stem the meltdown. The central bank said it could only do so under certain conditions in “excessive volatility.”
Former bank deputy governor Semih Tumen, who was dismissed last month in the latest round of Erdogan’s rapid leadership overhaul, 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 worst since the height of a currency crisis in 2018 that led to a sharp recession, and brought on three years of sub-par economic growth and double-digit inflation.
Though the lira recovered a bit to 12.86 by 1635 GMT, the last 11 days have been its worst run since 1999. Over just three hours of volatile trading on Tuesday, its value bounced to 13 from 12 to the dollar.
The central bank has slashed rates by a total of 400 points since September, leaving real yields deeply negative as virtually all other central banks have begun tightening against rising inflation, or are reparing to do so.