The Turkish lira fell to a record low on Thursday. Despite high inflation, the Turkish central bank cut the key rate again from 16 to 15 percent. In doing so, it complied with a demand by President Recep Tayyip Erdoğan for lower interest rates. This put considerable pressure on the national currency, which had recently hit record lows again and again. For one dollar up to 11.28 lira had to be paid, that was a surcharge of 6.3 percent. One euro rose in price by 6.5 percent to 12.79 lira. The key interest rate is now even more clearly below the inflation rate of officially just under 20 percent. “This is literally a crazy move that puts the lira in jeopardy,” commented analyst Tim Ash of asset manager BlueBay Asset Management. “This creates no trust,” said VP Bank’s chief economist Thomas Gitzel, criticizing the central bank’s decision.
Erdoğan is an avowed opponent of high interest rates and, contrary to popular belief, believes that high interest rates cause inflation rather than combat it. It was only on Wednesday that he spoke of an “interest rate plague” and spoke out clearly in favor of low interest rates. Erdoğan recently fired three central bankers whose monetary policy he did not agree with. The current head of the central bank, Sahap Kavcioglu, has been in office since March after his predecessor Naci Agbal was dismissed for raising interest rates. Kavcioglu is now the fourth central bank governor since 2019. All of his predecessors were ultimately out of favor because they did not support Erdoğan’s preferred course of loose monetary policy.
The euro stopped its slide. After the common currency had recently fallen to a 16-month low because investors were increasingly betting on the dollar in view of a possible interest rate hike in the US, the euro was 0.5 percent higher on Thursday at $ 1.1370.