The Turkish lira continued to slide on Thursday as President Recep Tayyip Erdogan explicitly intervened in monetary policy promising a drop in interest rates.
One Euro bought just under 5,7 Turkish Lira on Thursday, which sets a new record.
Erdogan’s intervention follows the appointment of his son-in-law Berat Albayrak as minister of finance on Monday, which is seen as a sign of determination to maintain a tighter and personal grip over economic policy.
Albayrak is not expected to oppose his almighty father-in-law, although lowering interest rates is against orthodox monetary policy.
Turkey is currently experiencing double-digit inflation, which reached 15,4% in June; the current account deficit reached 10% in May, year on year. Additional pressure stems from the fact that US bond yields are surging, while the private sector in Turkey has borrowed in dollars.
Markets fear a currency meltdown.
President Erdogan is convinced that low-interest rates are essential for Turkey, which according to official numbers has the highest growth rate in the OECD.
The promise of lower interest rates is accelerating the Lira’s devaluation as Turkey can no longer count on the independence of the Turkish Central Bank. Moody’s warned on Thursday that resolve to tighten monetary policy could weaken in the following months.
The concentration of power is already a major concern after the 2017 constitutional referendum, which turns Turkey’s President into the strongest executive in Europe.