Lira eases back from record low as Turkey stumbles into unknown

Reuters

Turkey's lira clawed back some losses on Nov. 24 after a 15% crash to record lows a day earlier driven by President Recep Tayyip Erdoğan's defense of rate cuts, but volatility and steep price rises still worried consumers and investors.

The lira has hit new all-time lows for 11 consecutive sessions and its losses against the dollar this year stand at 40%, with a 19% decline since the beginning of last week alone.

On Nov. 24 morning, the lira weakened as far as 13.1500 to the U.S. currency. It stood at 12.6005 by 0919 GMT, 0.8% firmer than the close on Nov. 23.

Bankers said liquidity had virtually dried up with moves to the record low of 13.45 driven by panic dollar buying.

Many Turks, already grappling with inflation of around 20%, fear price rises will accelerate. Opposition politicians have accused Erdoğan of dragging the country into crisis.

Retailers too are struggling with the turmoil, with some websites stopping sales of electronic products on Nov. 24. 

A sales representative at an Istanbul Apple store said people were thinking of electronics as an investment as much as items to use. "It is pretty surreal with the economy and all, but people see it as a store of value," the representative said.

Despite Erdoğan defending the central bank's monetary policy and vowing to win his "economic war of independence," there is widespread criticism from those calling for action to reverse the slide in the currency, including from top economists.

There was no hint at an intervention to stem the meltdown. The central bank said on Nov. 23 it could only do so under certain conditions in "excessive volatility." 

"With today's exchange rate, official inflation could exceed 30% in the coming months. With the current deposit rate this means a real interest rate of -15%," former central bank chief economist Hakan Kara wrote on Twitter.

"If measures are not taken urgently, the financial system cannot cope with this," he added.

Erdoğan has pressured the central bank to move to an aggressive easing cycle with the goal of boosting exports, investment and jobs.

But many economists have described the rate cuts as reckless and opposition politicians called for immediate elections.

Following a meeting between Erdoğan and central bank Governor Şahap Kavcıoğlu, the bank issued a statement saying the selloff was "unrealistic and completely detached" from economic fundamentals.

The slide on Nov. 23 was the lira's largest since the height of a currency crisis in 2018 that led to a sharp recession and three years of below-par economic growth and double-digit inflation.

The central bank has slashed rates by a total of 400 points since September, leaving real yields deeply negative as virtually all other central banks have either begun tightening policy to stem rising inflation or are preparing to do so.