The Turkish lira dipped to new record lows on Wednesday after President Recep Tayyip Erdogan rattled investor confidence by saying he had spoken to the central bank governor about the need to lower interest rates.
The lira weakened about 3% early Wednesday following Erdogan’s comments, reaching 8.8 against the dollar. It later recovered some ground, stabilizing at 8.62 against the dollar.
“I spoke to the central bank governor today. It is imperative that we lower interest rates,” Erdogan said in an interview late Tuesday with state broadcaster TRT. He suggested July or August as a possible target date for a rate cut.
In March, Erdogan fired his third central bank head in less than two years and appointed Sahap Kavcioglu, who like the Turkish leader, strongly argued for lower interest rates. The move raised concerns about a possible return to unconventional monetary policy as the country struggles with persistent inflation.
Typically, higher interest rates shore up a currency and help combat inflation. Erdogan has argued the contrary, that high rates cause inflation.
Before he was fired, the previous central bank governor had raised interest rates by the more-than-expected 2 percentage points. [AP]