The Turkish president is struggling with a sharp fall in the value of his currency.
(Photo: Reuters)
The Turkish President Tayyip Erdogan has sent the already massively weakened national currency lira to a record low with further appeals for interest rate cuts. The Turkish central bank intervened a few hours later to support the lira on the foreign exchange market. After the intervention, the currency was initially able to recover a little from recent losses.
The high inflation is likely to decline if the key interest rates are lowered, Erdogan told the state broadcaster TRT on Tuesday. Turkey should lower the key interest rate and promote investment, employment, production and growth.
He reiterated his unorthodox view that high interest rates drove prices up. Key interest rates are likely to fall significantly before the 2023 elections and the acceleration in prices is likely to subside. He does not want to distance himself from this economic model.
The lira then went downhill. In the markets, 14 lira were paid for one dollar. Since the beginning of this year, the Turkish currency has devalued 45 percent.
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For the first time in seven years, the central bank had sold foreign currency to curb the fall in the lira in trading with the US dollar, the central bank announced on Wednesday. The intervention was due to “unhealthy pricing” on the market, the statement said.
Erdogan is an avowed opponent of interest rate hikes and is putting pressure on the central bank to lower key interest rates – although inflation has recently risen to almost 20 percent. Companies are warning of economic difficulties caused by the collapse of the lira, which is making imports significantly more expensive and thus further fueling inflation. Erdogan argues against it and sees the high interest rates – currently the key rate in Turkey is 15 percent – as the reason for the rising inflation.
Erdogan believes Turkey will see strong economic growth this year. At least ten percent of the gross domestic product should increase, he added. The core indicators for the Turkish economy are very strong and the country is currently waiting for long-term investments from abroad.
More: The Turkish President does not want to raise key interest rates – although inflation has recently risen to almost 20 percent. The local currency, the lira, continues to decline.