Turkey’s lira slipped 1.1% against the dollar on Tuesday to set a record closing low as concerns over rampant inflation were stoked by President Recep Tayyip Erdogan’s pledge to continue cutting interest rates.
In a Monday evening speech, Erdogan sought to downplay the surge in annual consumer prices, 73% last month, as just one of several problems for the economy that should begin to ease early next year.
The lira closed at 16.765 to the dollar from a close of 16.58 on Monday. It has weakened over 21% this year, on top of a 44% slide in 2021, when it was hit by a series of unorthodox interest rate cuts made despite high inflation.
Early overnight trades saw the lira weaken further to 16.845 for the Wednesday session.
The cost to ensure exposure to Turkey’s sovereign debt rose, while its dollar-denominated bond prices fell.
Turkey five-year credit default swaps closed above 730 basis points, at levels last seen during the global financial crisis in 2008, data from S&P Global showed.
Bond prices were lower by more than one cent for most issues, with the September 2027 bond down 1.1 cents to 96.79 and yielding 9.1%.
Speaking after a cabinet meeting, Erdogan said Turkey will not raise interest rates but rather continue cutting them in the face of high living costs.
He also redoubled his commitment to boosting production, exports and employment with the low-rates policy and promised a current account surplus that will eventually steady the currency and cool inflation.
Separately, the central bank said it sold $1.82 billion in foreign currencies last month to state enterprises, primarily energy-importer Botas.