Turkey’s lira plunged 5% to new depths against the dollar and euro on Tuesday, capping its fifth-worst month ever, after President Tayyip Erdogan repeatedly endorsed aggressive rate cuts despite widespread criticism and soaring inflation.
The lira has lost 45% of its value so far this year and 29% this month alone against the US currency, which was boosted in late-session trading.
The volatile selloff in November puts it among the ranks of crises in 2018, 2001 and 1994, according to Goldman Sachs research.
The currency hit a record low 13.4515, exceeding the low it hit last week after Erdogan defended the monetary easing that most economists have called reckless. It stood at 13.35 versus the dollar at 6.18 p.m. and also touched 15.06 to the euro.
In response to the cuts to 15% in the policy rate, the opposition has called for a quick reversal and snap elections. Concerns about central bank credibility took another blow on Tuesday after a top official was said to have left his post.
Erdogan was set to discuss his new economic strategy in a televised interview on state-owned TRT later on Tuesday.
“Monetary policy is likely to remain under political influence and not tight enough to significantly reduce inflation, stabilize the currency and restore investor confidence,” credit ratings firm Moody’s said in a note.
Turkey’s economy grew 7.4% year-on-year in the third quarter, according to official data released on Tuesday, in line with market expectations and boosted by retail demand, manufacturing and exports.
Erdogan and other government officials have stressed that while there may be price pain for a while, the monetary stimulus should boost exports, credit, jobs and economic growth.
Erdogan’s most recent defense of rate cuts was Monday when he was quoted as saying he will never defend hikes nor compromise on the issue. Economists say the depreciation and accelerated inflation will derail Erdogan’s plan.
Under pressure from Erdogan, the central bank has slashed rates by 400 basis points since September and is widely expected to ease again in December. Real rates are deeply negative at nearly 500 basis points.
A central bank source said on Tuesday that the executive director of the bank’s markets department, Doruk Kucuksarac, had left his post and had been replaced by his deputy Hakan Er.
Kucuksarac did not immediately respond to a request for comment.
A banker who requested anonymity said his departure was further evidence of an “erosion and devastation” of the institution after this year’s mass leadership overhaul and years of political influence on policy.
Erdogan sacked three monetary policy committee members in October. Governor Sahap Kavcioglu was only appointed to the post in March after the president fired his three predecessors in the last 2.5 years over policy disagreements. [Reuters]