The Turkish pound is falling freely due to the policies of Erdogan who swears victory in the "economic war" and hopes for "God's grace and the support of the people"
The Turkish pound went through one of the worst days of a currency crisis three years ago, after President Recep Tayyip Erdogan praised the recent cut in interest rates and said his country was waging an "economic war of independence".
The currency, which has fallen nearly 40 percent against the dollar this year, broke the symbolic "12" mark against the dollar, with Erdogan adopting a militant rhetoric to set out his vision for the country's economy.
The fall recorded today, according to the Financial Times was the most intense that the pound has suffered since August 2018 with the then monetary crisis.
"It's like a horror movie," said Enver Erkan, an analyst at Istanbul-based Terra Investment, adding that it was difficult to say how much more the currency would sink as policymakers seemed willing to just let it fall.
Erdogan, a lifelong opponent of high interest rates, said in a speech Monday night that he was "pleased" that the central bank had cut interest rates for the third month in a row last week, despite warnings from economists that it would boost inflation. which is already running at an annual rate of 20 percent and further destabilize the currency.
Drawing a picture of a dark global conspiracy to subjugate Turkey, Erdogan said the country would not give in to economists, "opportunists" and "global economic acrobats" calling for higher interest rates.
The government has given priority to growth, he said, in order to encourage investment, production, exports and employment. "That is why we do not pay attention to the roar of the fatalists," he said.
He compared the struggle with the one that the nation fought against foreign invaders after the First World War, which culminated with the founding of the modern Turkish Republic in 1923. "By the grace of God and the support of our people we will emerge victorious from this "war of economic independence," he said.
Turkish manufacturers are squeezed by rising costs
Turkey's central bank, which has faced growing intervention from President Erdogan, tried last month to argue that cuts in interest rates would help the currency fall and boost inflation by erasing its chronic current account deficit.
Economists warn that such a logic is wrong and stress that there is a risk of creating hyperinflation in a country that is heavily dependent on imported energy and raw materials.
The sharp slip of the currency could also cause further erosion of living standards at a time when Erdogan is already facing growing public anger over the rising cost of basic goods.
According to the Finacial Times, a Turkish banker described the pound's slide as "a monetary shock caused by policy-making" that had been actively chosen by the government. "The choice is clear," he said. "It simply came to our notice then. This is the new approach. "
Semih Tumen, a former central bank deputy who was among several senior officials ousted by President Erdogan last month, spoke publicly for the first time since his ouster as the currency collapsed to call on the government to "abandon this absurd experiment." which has no chance of success ".
Specifically, in a post on Twitter, he stressed that: "We must immediately return to high quality policies that will protect the value of the pound and the prosperity of the Turkish people."
SOURCE: Financial Times