The Turkish pound is in ‘free fall’ – It has lost up to 15%

LAST UPDATE 16:00

The Turkish pound is falling around 10%, hitting more than 12 against the dollar, reaching a new record low, the 11th in a number of days, following statements by President Erdogan, who defended recent interest rate cuts and vowed to win. the “economic war of independence”, despite widespread criticism.

The pound fell to 12.51 against the US currency, while earlier it was at 13.45 against the dollar, losing up to 15%.

The pound has lost more than 40% of its value since the beginning of the year, while since last week it has fallen by more than 20%.

Erdogan has pressured the central bank to turn to an aggressive cycle of tightening aimed at boosting exports, investment and jobs, despite inflation soaring near 20% and currency devaluation accelerating, significantly eroding citizens’ incomes.

Former central bank deputy governor Semih Tumen, who was ousted by Erdogan last month, has called for an immediate return to policies that protect the value of the pound.

“This absurd experiment, which has no chance of success, must be abandoned immediately and we must return to quality policies that protect the value of the Turkish pound and the well-being of the Turkish people,” he said on twitter.

The pound has by far the worst performance in emerging markets this year, largely due to reckless policies and premature monetary easing.

Against the euro, the pound weakened to a new low, at 13.4035.

The central bank cut interest rates by 100 basis points last Thursday, well below inflation, which stands at 20%, and signaled further easing.

It has cut interest rates by 400 basis points since September, in what analysts call a dangerous policy mistake, given that real performance is profoundly negative and that almost all other central banks have begun or are preparing to tighten their policies. .

Analysts say they will soon need emergency increases, while speculation has begun about a possible replacement of the finance minister in a possible reshuffle, which also has a negative impact.

Erdogan defended his policy at a news conference late yesterday, saying a tougher policy would not reduce inflation.

“I reject policies that will shrink our country, weaken it, condemn our citizens to unemployment, hunger and poverty,” Erdogan told a cabinet meeting, causing the currency to collapse.

Societe Générale stressed that the central bank will need to make an “extraordinary” increase as soon as possible, even next month, to raise interest rates to 19% by the end of the first quarter of 2022.

“We do not see any value in Turkish assets yet. The main difference from previous episodes in the market is the limited impetus from the authorities. There is clearly a will for a weaker currency,” said an analyst at Generali Insurance Asset Management.