Turkish lira stabilizes after record as Erdogan doubles

Turkish Lira banknotes are placed on US dollar banknotes in this illustration taken November 28, 2021. REUTERS / Dado Ruvic / Illustration

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  • The currency has lost 47% of its value against the dollar this year
  • Erdogan maintains low interest rate policy despite high inflation
  • President’s support drops in polls, elections slated for 2023

ISTANBUL, Dec. 1 (Reuters) – The Turkish lira held steady on Wednesday after falling to a new high of 14 per dollar overnight as President Tayyip Erdogan doubled down on his pre-election strategy of sharp rate cuts despite the surge in inflation and the many criticisms.

The lira stood at 13.40 against the US currency at 07:31 GMT, stable from Tuesday’s close when it slumped 8.6%. The greenback also benefited from hawkish comments from the US Federal Reserve. Read more

The currency has lost up to 47% of its value this year, down about 30% in November alone, rapidly eroding Turkish incomes and savings, shattering household budgets and even forcing them to shrink. scramble to find imported drugs. Read more

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Erdogan, for the fifth time in less than two weeks, defended monetary easing, which most economists called reckless, in an interview with public broadcaster TRT on Tuesday night. He said there was “no turning back” to the new policy.

“We will see that interest rates will drop significantly and therefore there will be an improvement in exchange rates before the elections,” he said.

Votes are set for mid-2023 at the latest.

“This is a dangerous experiment that Erdogan is trying to conduct and the market is trying to warn him of the consequences,” said Brian Jacobsen, Wisconsin-based, senior investment strategist in multi-asset solutions at Allspring Global Investments.

“The price of imports is likely to rise as the pound falls, which will worsen inflation. Foreign investment could be scared, making it more difficult to finance growth. credit carry a higher risk of default, ”he added.

“Investors are getting more and more nervous.… It’s a toxic brew.”

Last month’s sell-off was one of the biggest the pound has suffered, comparable to the crises the major emerging market economy faced in 2018, 2001 and 1994.

Erdogan’s AK party, which came to power following the 2001 crisis, has seen its support drop in opinion polls, which show Erdogan would lose to the most likely opponents of the presidential election.

Since September, the central bank has lowered its key rate by 400 basis points to 15% under pressure from Erdogan, leaving real rates deeply negative, with inflation close to 20%. It is generally expected to drop again in December.

The opposition called for an immediate policy reversal and early elections.

Economists say depreciation and accelerating inflation – which is expected to reach 30% next year largely due to the currency’s devaluation – will derail Erdogan’s plan. Virtually every other central bank is raising rates or about to do so.

November inflation data will be released on Friday and a Reuters poll predicts it will hit 20.7% annually, the highest level in three years. Inflation figures for Istanbul will be released at 09:00 GMT on Thursday. Read more

The purchasing managers index (PMI) for manufacturing on Wednesday showed factory activity increased in November from 51.2 to 52 a month earlier with new export orders and increased production. Read more

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Additional reporting by Rodrigo Campos in New York; Written by Daren Butler; Editing by Jonathan Spicer and Edmund Blair

Our Standards: Thomson Reuters Trust Principles.

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