Erdoğan says lira under attack as currency hits new low

Turkish President Recep Tayyip Erdoğan took aim at investors who are selling Turkish lira, saying the currency was under attack as it hit fresh record lows against the dollar.

Erdoğan said there was no technical or rational reason why the lira should be losing so much value. Turkey has prepared a “project” that will reverse this trend, he said in a speech on Tuesday.

The lira hit a new record as Erdoğan spoke, falling to as low as 4.3 to the U.S. currency. It declined 0.6 percent to 4.2946 at 1:28 p.m. in Istanbul. The currency had traded at 1.15 per dollar just before the 2008 financial crisis.

The lira slid 5 percent against the dollar last week, almost three times the average loss for emerging market currencies, as Standard & Poor’s and the International Monetary Fund warned that Turkey’s economy was overheating and called on the central bank to raise interest rates. Erdoğan’s government is implementing economic stimulus measures ahead of snap elections on June 24 that are spurring inflation and it is calling on banks to lower interest rates to boost lending to the economy.

The Turkish president has in the past blamed a so-called "interest rate lobby" and allies of businessman George Soros -- an oblique reference to Jews -- for selling Turkish assets in an effort to damage his government's popularity. Media columnists close to Erdoğan have also pointed the finger at Islamic preacher Fethullah Gulen -- who the government blames for masterminding a failed coup in July 2016 -- to explain away Turkey's economic ills.  

Erdoğan said his victory in the June presidential election was necessary to introduce a full presidential system of government that can better deal with internal and external threats to Turkey’s security. Erdogan plans to centralise economic decision-making after the election, including shuttering some autonomous institutions or bringing them under the control of ministries, Dunya newspaper reported last week.

Standard & Poor's cut Turkey's debt to BB- last week, two notches below investment grade, warning that centralisation of economic power under Erdogan is making policymaking less predictable and compromising the independence of the central bank.

The lira has dropped more than 10 percent against the dollar this year and yields on Turkish 10-year debt have hit record highs as inflation accelerated to 10.9 percent and the current account deficit widened to almost 6 percent of gross domestic product. The stock market has lost about 20 percent of its value in dollar terms.