The Turkish lira hit record lows on Tuesday after President Recep Tayyip Erdogan unveiled his intention to take more control of the country’s monetary policy if he wins the election next month. Analysts are concerned that if Erdogan flexes his monetary muscles, the interest rate increases that are necessary will not come to fruition. These rate hikes are, according to some analysts, critical to backstop the nation’s assets. Ergodan has called interest rates “the mother of all evil” and has dubbed himself “the enemy of interest rates”. He has been outspoken about his plan to lower interest rates at a time when economic policymakers are calling for an increase.
The lira hit an all-time low of 4.4752 per dollar on Tuesday. At the same time, 10-year government bond yields soared by 91 basis points to a record 14.81 percent. The lira has declined 15.3 percent year to date, and analysts are concerned that additional lows could be hit in the coming weeks unless there are some unexpected political changes.
Turkish inflation rates hit near 11 percent in April, pressured by the lira’s decline against the dollar. The Standard & Poor’s rating cut Turkey’s sovereign debt rating into junk territory at the beginning of May, a move that served only to cause additional decline of the lira. Turkey’s central bank is not set to meet again until June 7th, a time which analysts worry will be too late to take the necessary steps to combat inflation and support the failing lira.