Erdoğan faces backlash as lira extends longest losing streak in two decades
Turkey’s lira fell for the 12th straight day, extending the longest losing streak since financial turmoil two decades ago, as a sell-off on concern about central bank policy showed little sign of abating and small crowds took to the streets in protest.
The lira traded as weak as 13.13 per dollar, close to a record low of 13.52 per dollar reached on Tuesday, when it lost as much as 15 percent of its value, its second-biggest decline in 20 years. It was trading down 0.4 percent at 12.86 per dollar at 11:11 a.m. local time.
The currency’s losses, which total almost 45 percent this year, are unprecedented since President Recep Tayyip Erdoğan’s governing party won elections in 2002 and are sparking concerns for social unrest. Small-scale protests erupted in Istanbul and Ankara late on Tuesday, prompting police to intervene.
Erdoğan’s management of the economy, which has included ordering the central bank to cut interest rates over the past three months even as inflation climbed to almost 20 percent, has pummelled investor confidence in Turkey and hurt his government’s popularity. The political opposition has rallied in response, calling for snap presidential and parliamentary elections, which are currently scheduled for June 2023.
“The lira is now firmly in crisis territory,” Simon MacAdam, senior global economist at Capital Economics in London, said in an e-mailed report on Monday. “Hopes that the central bank will allay investors’ fears and put a floor under the lira by not cutting rates further (or even raising them) are evaporating.”
Erdoğan has sacked three central bank governors since mid-2019 and replaced most members of its rate-setting committee, allowing him to pursue a highly unorthodox policy of cutting interest rates to slow inflation. On Monday, he doubled down, saying he was determined to win a “war of economic independence” against foreign attackers, a mantra he has used in previous bouts of financial turmoil, most recently in the midst of a currency crisis in 2018.
In cutting interest rates to 15 percent from 16 percent last week, the central bank said it had room for another reduction in December.
A severe bout of financial turmoil two decades ago helped Erdoğan’s Justice and Development Party (AKP) win elections with a parliamentary majority in November 2002. Now Erdoğan, who gained vast new executive powers at elections in 2018, is faced with the possibility of following his predecessors out of office.
The lira has lost almost two-thirds of its value since Erdoğan was re-elected in July 2018, when the currency traded as strong as 4.5 per dollar.
Sixty-four percent of Turkish voters have no faith in the government’s ability to solve the country’s economic problems, according to a nationwide survey published by Ankara-based Metropoll at the weekend. About half of all workers in Turkey earn a monthly salary at or near the minimum wage. The statutory minimum salary, set at the start of each year, stands at a net 2,825 liras monthly. Its value in dollar terms has declined to $219 from $380 on Jan. 1.
Erdoğan met with Şahap Kavcıoğlu, the governor of the central bank, for unscheduled talks on Tuesday to discuss the sell-off in the lira. In a statement after the meeting, the bank offered no concrete response, saying the lira was a free-floating currency and was not committed to any exchange rate level. Economists including Atilla Yeşilada at Global Source Partners in Istanbul are now predicting that inflation will surge to more than 25 percent in the coming months.
Erdoğan’s popularity has been on the wane for several years. In 2019, he suffered a shock defeat in municipal elections, losing control of Turkey’s largest cities of Istanbul and Ankara. Some opinion polls now put support for the AKP at less than 30 percent. Erdoğan’s allies in parliament, the Nationalist Movement Party (MHP), may fail to garner enough votes to hold seats in the assembly.