Turkish lira hits new record low

The Turkish lira crashed to a record low of nearly 15 lira to the dollar before rebounding slightly in early trading on Monday, though the exchange rate remains volatile.

The crash of 7% to 14.99 lira to the dollar in just a few minutes comes amid worries of President Recep Tayyip Erdogan's political influence on the central bank.  By 0955 GMT, the lira had risen slightly in value against the dollar to 14.33 lira, or 15.69 lira to the euro.

Previously, Turkey's central bank had prevented the lira from dropping below 14 to the dollar. In the past two weeks, the bank intervened, selling off dollars on the foreign exchange markets.

Where is the central bank in this tumult?

Since September, the central bank has slashed its policy rate by 4% as a result of pressure from Erdogan. The policy rate is the interest rate a central bank charges commercial banks when lending them money.

Investors and regular Turks watching their savings dwindle and prices rise have concerns over Erdogan's risky economic policy. The spike in inflation of 21.3% just last month has been devastating on an emerging economy reliant on imports.

The central bank is expected to cut its policy rate by another 1% to 14% later this week, according to a Reuters poll taken Friday, ahead of Monday's volatile trading. 

Deep slide due in part to politicization of monetary policy

The slide in the value of the lira means the Turkish currency is now worth half of what it was against the US dollar at the end of last year.

Erdogan, who once appointed his own son-in-law as finance minister, believes that cutting interest rates is a key driver of economic growth.

He also argues, contrary to common economic wisdom, that high interest rates promote inflation. Most central banks cut interest rates to try to spur growth if inflation is low, and raise them if they perceive a need to keep inflation in check. 

ar/msh (Reuters)