A surge in US inflation exacerbated worries for the lira, a currency already hobbled by Turkey’s unorthodox rate cuts.
The Turkish lira has hit a record low of 12.49 against the US dollar after President Recep Tayyip Erdogan defended recent sharp rate cuts. The Turkish currency crashed by eight percent on Tuesday.
The lira has lost 40 percent of its value this year, including a near 20 percent tumble since the beginning of last week. Against the euro, the currency weakened to a fresh record low of 13.4035.
Lower rates will help spur economic growth and create jobs, Erdogan said late on Monday in the capital, Ankara.
Erdogan has applied pressure on the central bank to pivot to an aggressive easing cycle that aims, he says, to boost exports, investment and jobs – even as inflation soars to near 20 percent and the currency depreciation accelerates, eating deeply into Turks’ earnings.
The Turkish president defends an unorthodox theory that higher interest rates cause higher inflation.
Most economists, however, contend Turkey faces a huge crisis, including high inflation, in case rates continue to drop in the coming months.
Under pressure from Erdogan, the central bank cut key interest rates from 19 to 15 percent in September, driving a free-fall in the lira.
Erdogan has replaced three central bank governors in the past two years, undermining investor confidence.