Turkish President Tayyip Erdogan said he will never defend interest rate hikes nor compromise on the issue, NTV and other broadcasters reported on Monday, in his latest defense of recent monetary easing that has triggered a crash in the lira currency.
The lira weakened as far as 12.85 in early trade and briefly dipped again to 12.77 after Erdogan’s latest comments. Liquidity was low with wide bid-ask spreads. At 1111 GMT, the currency was 3.7% weaker at 12.70.
“Tayyip Erdogan has talked from the beginning about low interest rates and says ‘this interest rate will come down’,” the president was quoted as telling reporters on his flight back from a visit to Turkmenistan.
“I have never defended raising interest rates, I don’t now and will not defend it,” he said. “I will never compromise on this issue.”
He said that recent exchange rate volatility was not based on economic fundamentals and that Ankara was ready to provide necessary support to boost investments, namely through state banks.
NTV also reported him as saying he had not changed his unorthodox view that interest rates cause inflation.
“You will see, God willing, how far inflation falls before the election,” he added. “The interest rate lobbies are seething.”
The lira has tumbled as much as 45% against the dollar this year, with much of those losses suffered after Erdogan stepped us his defence of monetary policy. The central bank has slashed its policy rate by 400 basis points since September despite annual inflation around 20%.
The selloff this month is the lira’s fifth-worst ever, according to Goldman Sachs research, putting it among the ranks of crises in 2018, 2001 and 1994. [Reuters]