Turkey Lira Collapses Another 15% in One Day as Erdogan Defends Rate Cuts

Turkey’s currency, the lira collapse accelerated Tuesday, down 15% on the day. This was its second-worst day ever with the latest catalyst President Tayyip Erdogan defending the Turley Central Bank sharp rate cuts. He vows to win his so called “economic war of independence”. Meanwhile Turks can’t afford bare necessities as inflation runs rampant from the collapsed currency.

Turkey Rising Inflation v Falling Interest Rates

Erdogan has dug his heals in from the widespread criticism and pleas to reverse course on rates.

Highlights (via Reuters)

  • Lira has shed 45% vs dollar this year, worst in world
  • Lost 26% in a week
  • Last 11 days have been its worst run since 1999
  • Turkey Central bank has slashed policy rate 400 points since Sept
  • Turks say household budgets, future plans in turmoil
  • Ex-central banker calls for end to ‘irrational experiment’
  • Erdogan insists tighter policy will not lower inflation

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.

Erdogan defended the policy late on Monday and said high rates would not lower inflation, an unorthodox view he has repeated for years.

“I reject policies that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty,” he said after a cabinet meeting, prompting a late-day slide in the lira.

– Erdogan
Turkish Lira Collapse

Significantly the market responded negatively after there was no hint at an intervention to stem the collapse of $USDTRY. The central bank said it could only do so under certain conditions in “excessive volatility”.

The Turkish 10-year benchmark bond yield rose above 21% for the first time since the start of 2019. Sovereign dollar bonds suffered sharp falls with many longer-dated issues down 2 cents, Tradeweb data showed.

Former bank deputy governor Semih Tumen, who was fired 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.

Source: Reuters

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