Turkey Wants the Impossible: Lower Rates and a Stable Lira
Cutting borrowing costs amid skyrocketing inflation is a recipe for only one thing. The currency crash on Erdogan’s hands is a disaster of his own making.
The impossible dilemma.
Photographer: Alessia Pierdomenico/BloombergRecep Tayyip Erdogan needs to decide what he wants from his top economic brass. Is it steep and persistent reductions in interest rates despite stratospheric inflation, or some degree of stability in the lira? It’s getting increasingly tough to have both.
Even by the standards of Turkish policy gymnastics, this week has been one for the books. The central bank intervened directly in markets for the first time in seven years to prop up the sagging lira. Erdogan then announced he is replacing his finance minister, prompting a renewed dip. The currency has lost a staggering 44% of its value against the dollar this year. (Argentina’s peso looks like sound investment by comparison, down a mere 17%.)