In this month alone, the lira has lost around a quarter of its value against the dollar and the euro.
(Photo: dpa)
Ankara The Turkish lira collapsed on Tuesday, according to President Recep Tayyip Erdogan. It fell to record lows against the dollar and the euro. Against the dollar, the daily losses were at times ten percent. In return, the dollar rose above 12 lira for the first time. The euro rate rose to 14.06 lira.
Erdogan demanded a “competitive” lira on Tuesday. An even weaker exchange rate should encourage investment and jobs. The currency had already come under pressure in the past few weeks. In this month alone, the lira has lost around a quarter of its value against the dollar and the euro.
This should further fuel inflation as imported goods become more expensive. The central bank had recently lowered the key interest rate after Erdogan’s pressure and thus sent the lira to lows. While the inflation rate is almost 20 percent, the key interest rate has been reduced to 15 percent. Another rate cut is likely to follow in December. Erdogan takes the view, contrary to the current doctrine, that high interest rates promote inflation.
The pressure on the central bank is likely to continue. Devlet Bahceli, head of the nationalist party MHP, called for a discussion on the end of the independence of the central bank. The MHP is part of Erdogan’s government. “Independent institutions cannot stand above the will of the people,” said Bahceli.
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“Turkey should be free from the interest burden.” He also demanded that Turkey oppose the International Monetary Fund and the “interest lobby”. The statements are likely to further weaken confidence in the lira and the Turkish economy.
More: Crisis! What crisis? – How inflation in Turkey is widening the gap between rich and poor