LONDON (Dispatches) - The Turkish lira nose-dived over 15% after President Tayyip Erdogan defended a controversial plan to cut interest rates to boost the economy.
The currency hit a record low of just over 13 lira to the dollar, before recovering slightly, marking 11 straight days of falls.
Erdogan has pushed Turkey’s central bank to make three rate cuts since September, the most recent last week.
But this has been blamed for driving up inflation which is now at 20%.
Investors are losing confidence and the lira has shed some 45% of its value this year, making it the world’s worst performing currency.
Despite this, Erdogan vowed to stick to his policies on Monday, arguing that high interest rates would not lower inflation - an unorthodox view he has repeated for years.
“I reject policies that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty,” he said after a cabinet meeting.
“We see the game played by those over the currency, interest and price hikes... and show our will to proceed with our own game plan,” he added.
The president and his allies argue that lower interest rates will boost Turkish exports, investment and jobs. But many economists say the rate cuts are reckless.
President Erdogan thinks raising interest rates causes inflation, and that the way to combat rising prices is to make money cheaper.
It is, to say the least, an unconventional view. Orthodox thinking is the opposite: that raising rates encourages saving, reduces expenditure and as a result slows price increases.
The president is determined that it’s his way or the highway. In March, he sacked the Bank’s governor, Naci Agbal - who had been hiking interest rates aggressively. Two of his deputy governors soon followed.
Now Erdogan is in control. Last week saw the latest in a series of rate cuts, the trigger for an ever-deeper decline in the value of the lira.
Yesterday, he said the country was embroiled in a battle for its “economic independence”.