Turkey’s lira crashed on Tuesday after President Tayyip Erdogan defended the central bank’s questionable rate cuts amid rising double-digit inflation. The lira tumbled more than 15% to a once unfathomable level of 13.45 against the US dollar, before shedding some of the losses to close at 12.70 versus the greenback. The local currency has dived to uncharted depth for an 11th straight session. It has fallen 42% since the beginning of this year, the worst depreciation among emerging market peers.
The Central Bank of the Republic of Turkey has slashed key interest rates by 400 basis points since September. The reduction has left real yields deeply negative. Erdogan said the aggressive easing cycle was to boost exports, investment, and jobs. However, the depreciation has eroded the earnings of many Turks, upending their household budgets and future plans. Inflation in Turkey is now close to 20%, meaning that roughly 85 million Turks have to pay hefty prices for basic goods at the time when their local currency salaries are sharply devalued.
Analysts said Turkey is currently carrying out “insane” monetary policy settings, and emergency rate hikes would be required soon. Former bank deputy governor Semih Tumen, whom President Erdogan dismissed last month, said the policy is “irrational” and has no chance of success. He also urged the central bank to immediately return to policies that could protect the lira’s value and the prosperity of Turks.
