The Turkish lira fell to new record lows against the dollar on Friday, as President Tayyip Erdogan renewed criticisms of the country’s central bank.
“They say central banks are independent so we shouldn’t interfere. This is the end result because we haven’t interfered,” Bloomberg reported Erdogan as saying. “Results speak for themselves.”
To the consternation of Turkey’s central bankers, the president has earned a reputation as the world’s most outspoken proponent of a theory that high interest rates cause high inflation.
Vowing to fight what he referred to as an “interest rate lobby” conspiring to keep rates artificially high, Erdogan said “we will solve this, things can’t go on like this.”
“We can’t make this a taboo,” he protested, referring to norms of central bank independence preventing him from commenting on monetary policy.
Following the lira down, the Borsa Istanbul Banks Index fell as much as 2.4%, according to Bloomberg.
As was reported in Asia Times earlier this month, Turkey’s rising payments deficit has helped push down the lira, raising import prices and inflation. The currency devaluation in turn scares away the hot money investors that Turkey depends on, threatening to push the country into a spiral of devaluation and inflation.
Erdogan’s push to cut interest rates will only exacerbate the problems according to most economists, Bloomberg reported senior analyst at Medley Global Advisors in London Nigel Rendell as saying.
“The financial markets view rates as being too low,” Rendell said. “Turkey has a loose monetary policy and the current settings are not a recipe for the central bank — whose credibility is draining away — to conquer inflation. This is all going to end in tears.”