Lira crashes to new low of 20 vs euro after Erdogan comments

Turkish president defends economic policy, likens currency volatility to attacks on economy

ISTANBUL:

Turkey's lira sputtered to new lows on Monday, including blowing through 20 to the euro for the first time, after President Tayyip Erdogan doubled down on his unorthodox low-rates policy by referring to Islamic usury doctrine.

The president's push for 500 basis points of interest rate cuts since September has set off Turkey's worst currency crisis in two decades, with the lira crashing 35% in the last 30 days.

The currency fell to as far as 17.7540 to the dollar, an all-time low, and was at 17.7 at 1250 GMT. It also hit a record low against the euro, touching 20.0581, but traded at 19.92 at 1252 GMT.

Erdogan defended his economic policy on Sunday and likened the currency volatility to attacks on the country's economy that have roots in 2013 nationwide protests, which began in Istanbul's Gezi Park over access to green space.

"We are lowering interest rates. Do not expect anything else from me. As a Muslim, whatever (Islamic teaching) requires I will continue to do that," he said, referring to Islamic finance in which high interest, or usury, is typically avoided.

Despite widespread criticism and rapid fallout for the economy - including Turks' fast eroding incomes and savings - Erdogan has forged ahead with his so-called new economic programme that prioritises exports and lending.

Under pressure from the president, the central bank cut rates again last week by 100 points, sending real rates deeper into negative territory, a red flag for investors and savers.

Erdogan's latest speech is more confirmation of his plan "but also suggests he is going to push for more rate cuts," said Kieran Curtis, portfolio manager at Aberdeen Standard Investments.

"I think many investors are now looking at 2023 and the election as the time when it starts to potentially become interesting again."

Capital controls that stop Turks from being able to buy foreign currency, he said, "would be extremely politically unpopular so I think it is unlikely."

Inflation jumped to 21% last month and is expected to pass 30% next year. Economists and opposition lawmakers say the rapid monetary easing is reckless and it has sent import prices soaring.

The lira has lost more than half of its value this year and is by far the worst performer among peers for three years running, due largely to damaged monetary credibility, analysts say.

In an attempt to slow the selling and address what it called "unhealthy" prices, the central bank has intervened five times this month. Bankers' calculations show it has sold more than $6 billion from its already depleted foreign reserves.

On Saturday, Turkey's largest business group TUSIAD called on the government to abandon the low rates policy and return to "rules of economic science".