Turkish lira declines 15% after Erdogan boosts fire sales Reuters

By Daren Butler and Nevzat Devranoglu

ISTANBUL (Reuters) – 15% plunged on Tuesday after President Tayyip Erdogan defended the sharp rate cuts last year and vowed to win his “economic war of independence” despite the widespread criticism and pleas to reverse the path.

The lira fell to $ 13.45 after plumbing logs http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html 11th consecutive session before matching some losses. . This year it has dropped 45% in value, including a drop of almost 26% since the beginning of last week.

Erdogan has put pressure on the central bank to push for an aggressive easing cycle to boost exports, investment and employment, even as inflation rises to 20% and accelerates the depreciation of the currency, eating deep into Turkish profits.

Many economists considered the rate cuts to be reckless while opposition politicians appealed for early elections. The Turks told Reuters that the dizzying collapse of the money was ruining their home budgets and plans for the future.

Although authorities did not intervene to stop the sale, two sources said Erdogan met with central bank governor Sahap Kavcioglu on Tuesday, but did not provide further details. The bank did not comment on the fall of the lira.

Former central bank deputy governor Semih Tumen, who was ousted last month in a quick review of Erdogan’s leadership, called for an immediate return to policies that protect the value of the lira.

“This irrational experiment with no chance of success must be stopped immediately and we must return to quality policies that protect the value of the Turkish lira and the prosperity of the Turkish people,” he said on Twitter (NYSE :).

Tuesday’s slide slide was the worst https://tmsnrt.rs/3nLLcHe 2018 has led to a sharp recession since the time of the currency crisis, and led to three years of economic growth and double-digit inflation.

Although the lira recovered half of its loss to 1413 GMT, at 12,485 dollars, the last 11 days have been the worst trajectory it has had since 1999. In more than three hours of volatile trading on Tuesday, its value rose to 13 to $ 12.

The central bank has cut rates a total of 400 points since September, leaving real returns very negative at https://tmsnrt.rs/3nsOPlp, as almost all other central banks have begun to tighten, or are preparing to do so.

EMERGENCY SURVEYS

The lira has had the worst performance in the world this year, mainly because of what the president, who has ruled Turkey for nearly two decades, has called some analysts an early economic “experiment”.

Erdogan’s AK Party is slipping into polls ahead of the elections scheduled for mid-2023, reflecting significantly higher living costs.

“Prices are rising too fast. I don’t want to buy some products because they are too expensive,” said Kaan Acar, a 28-year-old hotel manager at Kalkan station in southern Turkey, adding that he was thinking of canceling a trip abroad. over cost.

“The blame lies with President Erdogan, the AKP government and those who closed their eyes and helped them for years.”

Investors seemed to have fled because volatility gauges had risen to peak levels since March, when Erdogan suddenly removed the former central bank chief and installed Kavcioglu, who is critical of high rates as president.

Against the euro, the currency weakened to a new record above 15 on Tuesday.

The yield on the 10-year benchmark bond rose by more than 21% for the first time since early 2019. Sovereign dollar bonds suffered sharp declines with many longer-term issues down 2 cents, Tradeweb data showed.

As the lira fell, Turkey’s main stock index rose more than 1% as a result of low valuations. However, bank shares fell and the bank index fell by 2.5%.

EMERGENCY WALKS

The central bank cut its policy rate by 100 basis points to 15% last Thursday, well below inflation at almost 20%, and noted further easing.

Erdogan on Tuesday received the support of his parliamentary ally from patriotic MHP leader Devlet Bahceli, who said high interest rates limit production and there was no alternative to an investment-oriented policy.

“Turkey needs to remove the interest rate knot,” Bahcel said in a speech to his party in parliament.

Erdogan defended the policy on Monday night and said the high rate would not bring down inflation, an unorthodox approach he has repeated over the years.

“I reject policies that will shrink, weaken our people, condemn our people to unemployment, hunger and poverty,” he said after a ministerial meeting, causing the end of the lyre to slip.

Analysts said increases in the emergency rate would be needed soon, and speculation over the renewal of the cabinet of more orthodox finance minister Lutfi Elvan has also weighed heavily.

The Societe Generale (OTC 🙂 announced an “emergency” increase as soon as next month, with the policy rate expected to rise to around 19% by the end of the first quarter of 2022.

Ilan Solot, a global market strategist at Brown Brothers Harriman, said Erdogan would wait until “a breaking point” before he could probably flip the path.

“Right now the locals seem content with keeping their dollars in the local system. If the money starts moving to another place, to Germany, to Austria, it’s a different story,” Solot said.

“At the moment we are talking about capital controls. There are not enough dollar reserves, there are not enough dollars in the system to manage that. Then we will have a conversation about a real currency crisis,” he added.