Erdogan stokes a firestorm, the Turkish currency plummets by 8%.

Listen to this Article Now

Turkey’s currency plummeted 8% on Tuesday after President Tayyip Erdogan defended recent rate cuts and pledged to win his “economic battle of independence” despite widespread condemnation and requests to change course.

After hitting new highs in the previous 11 sessions, the lira plummeted to as low as 12.49 against the dollar. This year, it has lost 40% of its value, including a near 20% drop since the beginning of last week.

Erdogan has put pressure on the central bank to switch to an aggressive easing cycle in order to increase exports, investment, and jobs, despite the fact that inflation is nearing 20% and the currency devaluation is accelerating, eroding Turks’ wages.

Semih Tumen, Erdogan’s former central bank deputy governor who was fired last month, advocated for a swift restoration to policies that defend the lira’s value.

“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 (NYSE:TWTR).

The lira has been the worst performer among emerging market currencies this year, owing to what economists describe as reckless and premature monetary easing.

The dollar fell to a new record low of 13.4035 against the euro. As volatility gauges soared to their highest levels since March, when Erdogan abruptly fired the outgoing hawkish central bank president and replaced him with a like-minded critic of high rates, buyers appeared to dry up.

“Spreads show no liquidity in the market,” one forex dealer said, citing Erdogan’s remarks as the key cause. For the first time since the start of 2019, the 10-year benchmark bond yield surpassed 21%.

Turkey’s sovereign dollar bonds dropped almost a penny in early trading, according to Tradeweb statistics. The major stock index surged 1.5 percent as the lira fell, owing to unusually low valuations.

Story by : Norvisi Mawunyegah