Photo: Reuters/Murat Cetinmuhurdar

Turkish stocks lost 1.6% in local currency terms after President Erdogan declared that Turkish interest rates should fall, despite double-digit inflation and a rapidly depreciating Turkish lira. The biggest losers were Turkey’s major banks. At the same time the government announced restrictions on foreign-currency borrowing by nonfinancial corporations, who already have a combined US$220 billion hard currency debt.

As the lira depreciates, the cost of debt servicing rises for companies whose revenues are mainly in local currencies. Turkey’s reported 7% GDP growth last year was fueled by a binge of foreign and domestic borrowing that brought the country’s current account deficit to nearly 6% of GDP.