Turkey’s President Recep Tayyip Erdogan has vowed to take on the currency markets after a fresh cut in his country’s interest rates sent the lira plunging to its lowest ever level against the US dollar.
Specifically, he announced on Thursday that minimum wage would be increased by 50% to maintain its US dollar value. He also promised unspecified measures to ensure stability in the coming days.
Erdogan sent the message that Turkey’s destiny would not be determined by the level of borrowing costs or by foreign exchange speculators.
Even though signs his approach to running the economy was leading to rapidly rising inflation.
His move followed a fall of more than 5% in the lira’s value against the dollar triggered by an announcement by Turkey’s central bank that interest rates were being cut by a percentage point.
This is a bigger fall than the markets had been anticipating in light of the lira’s recent weakness.
At Erdogan’s insistence, interest rates have been cut by one percentage point five times since September, a period during which the currency has halved in value against the dollar and inflation rose to 21% – more than four times the official 5% target.
The central bank has intervened in the currency markets four times in the past two weeks, selling its depleting stock of dollars in an attempt to halt the lira’s decline.
However, analysts warned the latest cut in interest rates would intensify the pressure on the currency.