Erdoğan's crazy policies mean Turkish lira in constant crisis - strategist

Turkey's lira appears to be in a perpetual state of crisis due to the policies of President Recep Tayyip Erdoğan, said a top analyst following the country's economy.

Erdoğan has sparked sell-offs in the lira since 2018 by undermining the central bank's independence and insisting on lower interest rates even as inflation accelerated. The lira lost 44 percent of its value against the dollar last year and is down more than 20 percent in 2022.

"I guess we can kind of say that in recent years, under Erdoğan’s crazy interest rate policies, the lira is in a state of constant crisis," said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London.

The lira was trading down 0.1 percent at 17.22 per dollar on Monday. At the start of 2018, the exchange rates was 3.78 per dollar.

Ash was responding to comments by Robin Brooks, the chief economist of the Institute of International Finance (IIF) on Twitter, who said Turkey had experienced currency crises in 2018, 2019, 2020 and 2021.

"Many foreign investors have withdrawn and cut their strategic allocations to the country. Very unfortunate," Brooks said on Sunday. 

Erdoğan insists that higher interest rates are inflationary and are against his Islamic beliefs. Late last year, the central bank cut rates to 14 percent from 19 percent on his orders, sparking a sell-off in the lira. Inflation in Turkey accelerated to 73.5 percent in May, the highest level in developed economies and emerging markets. Earlier this month, Erdoğan said the central bank would cut interest rates again and rate hikes were out of the question.

Only traitors or illiterates link interest rates to inflation, the president said late last month.

Erdoğan is suffering a decline in popular support and must call elections for June next year at the latest. Ash said the next government would face an uphill struggle undoing policy mistakes and repairing the damage they have caused.

"Whoever wins the next election is likely to face the risk of having to deal with numerous economic skeletons in the cupboard, the result of years of bad policy choices, which will need difficult and painful adjustments," he said on Twitter.

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