Updated Nov 23, 2021, 02:54pm EST
The Turkish lira collapsed to a record-low value Tuesday after President Recep Tayyip Erdogan doubled down on his unorthodox plan to fight rising prices with lower interest rates—fueling concerns that the government’s seeming disregard for runaway inflation could intensify Turkey’s years-long currency troubles.
The lira fell 9% Tuesday to as low as $0.08, or 13.45 to the U.S. dollar, pushing losses to more than 19% over the past week and 23% over the past month.
Erdogan sparked the historic one-day plunge on Tuesday, after a speech in which he defended the Turkish central bank’s recent interest rate cuts and vowed to win an “economic war of independence.”
In a recent note, JPMorgan analysts blamed the lira’s exponential decline on the Turkish central bank’s three consecutive interest rate cuts, which Erdogan has welcomed in a bid to boost exports, investments and jobs—not unlike the reasoning behind U.S. Federal Reserve policy that’s kept interest rates at near-zero levels during the pandemic and most of the past decade.
However, the aggressive strategy in Turkey has flown in the face of traditional monetary policy utilizing higher interest rates to curb rising prices: The nation’s inflation rate soared to nearly 20% in October—three times the decades-highest inflation that’s sparked widespread economic concerns in the U.S.
Though higher rates are used to curb inflation, Erdogan has long expressed contempt for interest rates, which have fallen from 20% to 15% after the recent rate cuts, and has even called them the “mother and father of all evil” because they stave off economic growth.
In a statement Thursday morning, the Central Bank of the Republic of Turkey said it had no commitment to exchange rates and blasted the lira’s plunging value as “unrealistic and completely detached from economic fundamentals,” saying it would only intervene in the event of “excessive volatility.”