Turkish Lira Hits New Low After Erdogan’s Latest Rate Cut

Date: 17 December 2021 - 22:03

News ID: ۹۷۸۴۰

ISTANBUL (Reuters) - Turkey’s currency crisis accelerated on Friday as it plunged 8% to a new record low, gripped by concerns over an inflationary spiral brought on by President Tayyip Erdogan’s unusual plan to slash interest rates in the face of soaring prices.
The lira hit 17.0705 to the dollar, triggering direct central bank intervention in the market to prop up Turkey’s battered currency - its fifth effort this month to address what it called “unhealthy” prices.
The bank’s dollar-buying trimmed the lira’s losses to 16.5 by 1116 GMT. At this level it has still lost 55% of its value this year - including 37% in the last 30 days alone - deeply unsettling the major emerging market economy.
Erdogan’s decision to push through 500 basis points of monetary easing since September, including another big cut on Thursday, has sent inflation soaring above 21%. It is likely to blow through 30% next year due to ballooning import prices and an emergency hike in the minimum wage, economists say.
“With Erdogan seemingly becoming more entrenched in his anti-interest rate stance, the longer the currency crisis lasts, Turkey could be beyond the point of no return,” said Patrick Curran at Tellimer, describing the lira as totally disconnected from fundamentals.
“We are still not ready to catch the falling knife,” he said of the possibility of re-investing in Turkish assets. “As long as Erdogan is at the helm there is nothing to prevent the lira from continuing to depreciate.”
The knock-on effects have been fast and painful as Turks watch their savings and earnings dissolve.
Erdogan announced a 50% hike in the minimum wage, to 4,250 lira ($275) per month next year. But that is expected to boost overall consumer price inflation by 3.5 to 10 percentage points.
The hike affects some six million workers but, given the sharp lira depreciation, the new minimum wage is still lower than the equivalent $380 a year earlier.
The rapid and staggering market meltdown has outstripped Turkey’s currency crisis in 2018, which sparked a deep but brief recession.