The Turkish lira nosedived as much as 15 percent on Tuesday to hit a record low of 12.49 against the US dollar after President Recep Tayyip Erdogan defended recent sharp rate cuts. This is the second worst day for the Turkish currency in history and comes after Erdogan vowed to win his "economic war of independence" despite widespread criticism and pleas to reverse course.
Several experts and economists have called the rate cuts reckless and an insensitive while the opposition party has demanded for early elections. The massive currency collapse is now upending the household budgets and plans for the future of Turks.
The Turkish lira has so far declined over 45 percent in value this year, with a massive 26 percent decline since last week. Against the euro, the currency weakened to a fresh record low of 13.4035. Tuesday was one of the worst days.
The decline comes as a result of Erdogan unique policy to win his 'economic war of independence'. For this the President has been creating pressure on the central bank to pivot to an aggressive easing monetary cycle according to him will help boost exports, investment and jobs for the country to become economically independent.
This comes even as Turkey's inflation has climbed to almost 20 percent, while the currency is having a freefall, biting into the earnings of the Turks.
The central bank on at the same time has remained tightlipped during this crisis. According to sources, following the decline in the Turkish lira, Erdogan met with central bank Governor Sahap Kavcioglu on Tuesday. However, no further details are known. While economists have been calling the stance reckless, Erdogan has been maintaining that lower rates will help boost the economy and create jobs.
While the decline in currency is biting into the earnings of the Turks, Erdogan continues to firmly believe in his strange and unorthodox theory that higher rates mean higher inflation. The country is now in deep economic crisis unlike what Erdogan believes lower rates would have brought.
The central bank cut key interest rates from 19 to 15 percent in September after coming under pressure from the President. This further took a toll on the value of the lira. Edrogan's aggressive and illogical stance has also seen the ouster of three central bank governors in the past two years, undermining the confidence of investors.
Former central bank deputy governor Semih Tumen, who was dismissed in October this year, has now called for an immediate return to policies which protect the lira's value. But it is unlikely to happen given Edrogan's rigid mindset.
"This irrational experiment which has no chance of success must be abandoned immediately and we must return to quality policies which protect the Turkish lira's value and the prosperity of the Turkish people," he said on Twitter.
Tuesday's decline was the currency's worst since 2018 that led to a sharp recession. Though the lira somewhat recovered its losses by 6 am EST to 12.485 to the dollar, the last 11 days has been the most turbulent for the currency since 1999.