Lira nears record low as Erdoğan says took steps on rates
Turkey’s embattled lira fell towards a record low on Monday after President Recep Tayyip Erdoğan signaled that there would be no rate increases by the central bank to stem the currency’s decline.
The lira traded as weak as 4.3519 per dollar in Istanbul. It dropped 0.4 percent to 4.3317 at 8:56 a.m., close to the all-time low of 4.3719.
Asked about possible measures on interest rates on Sunday, Erdoğan reiterated his opposition to higher rates. The government has taken steps to lower interest costs and support the economy, including cuts in rates on home loans by state-run banks and a financial amnesty to draw capital into the economy, he said.
The shape and level of rates would “develop differently” after snap presidential and parliamentary elections on June 24, Erdoğan told reporters as he departed on a visit to the United Kingdom.
The lira hit its weakest level against the dollar last week after the central bank failed to intervene with rate increases. The currency then strengthened after Erdoğan called a hasty meeting of senior economy officials, raising speculation that the bank would finally act.
While the International Monetary Fund and ratings agencies including Standard & Poor’s have called on the central bank to increase rates from 13.5 percent, Erdoğan last week labeled interest rates as “the mother of all evils” saying they are inflationary and damage the economy. The bank raised its late liquidity window rate, which it uses to set policy, by 75 basis points last month to stem the lira’s decline.
Erdoğan, who is widely believed to hold significant sway over central bank decision-making, was due to speak to investors and analysts at Bloomberg and Chatham House during his three-day visit to the U.K., as well as meeting with the Queen and Prime Minister Theresa May.
The lira is weakening as rate increases by the Federal Reserve make emerging market assets less attractive. Turkey is particularly vulnerable to negative swings in global sentiment due to an inflation rate of 10.9 percent – more than three times the emerging market average – and a current account deficit that has approached 6 percent of gross domestic product, amid government efforts to stimulate the economy.