Turkish lira drops 10% after Erdogan defends interest rate cut

Turkish lira drops 10% after Erdogan defends interest rate cut

Ankara The Turkish currency weakened about 10% against the US dollar on Tuesday, a day after President Recep Tayyip Erdogan insisted there would be no rollback from his unconventional policy of cutting interest rates despite high inflation.

The lira fell to a record low of 12.51 against the dollar – 9.9% down from Monday’s close. The currency was trading at 14.08 against the euro. The lira has lost about 40% of its value since the beginning of the year.

Erdogan, a self-declared “enemy” of rising borrowing costs, portrayed his economic policies as an “economic war of independence” during a late-night televised address to the nation. He made it clear that his government would not back down from its policy of reducing borrowing rates to boost growth.

Contrary to traditional economic theory, Erdogan argues that high interest rates cause inflation. Typically, central banks raise these rates to tame rising consumer prices.

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“Either we were going to abandon investments, production, growth and employment by adhering to the understanding prevailing in our country for years, or we would engage in a historical struggle in line with our priorities,” Erdogan said. “As usual, we preferred to struggle.”

“We are determined to do the right thing for our nation,” he added. We encourage investment, production and exports. … We protect employment. …we care about growth.”

Turkey’s central bank has cut interest rates by four percentage points since September, raising concerns about its independence from Erdogan’s government. The president has fired three bank governors since 2019.

Inflation is around 20%, eroding the purchasing power of the public.

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