Istanbul: The lira fell to fresh record lows against the US dollar after Turkey's President Recep Tayyip Erdogan renewed calls for lower interest rates, making a vague reference to summer months as a target date.
"I spoke with our central bank governor today. It's an imperative that we lower interest rates. For that, we will reach July and August thereabouts so that rates can begin to fall," the Turkish leader said in an interview with state broadcaster TRT late Tuesday.
The lira weakened as much as 2.8% early Wednesday to reach past 8.8 per dollar following Erdogan's remarks. It was trading 1.6 per cent lower at 8.6760 per dollar at 00:54 a.m. in Istanbul.
The Turkish leader's remarks were part of a longer explanation on his unorthodox belief that lower borrowing costs will help slow inflation, unlike what most central bankers around the world believe. Cutting interest rates will lower producers' costs and eventually result in slower increases in consumer prices, Erdogan said.
His call for lower rates increases the pressure on central bank Governor Sahap Kavcioglu, who was installed after the president fired the previous governor for tightening policy too much.
But inflation at more than three times the official target of 5% makes it impossible for Kavcioglu to embark on an easing cycle just yet. Premature rate cuts in the past resulted in a weaker lira, which eventually pushed consumer prices higher, forcing the monetary authority to undo rate cuts with even bigger hikes.
"If we remove the burden of interest rates from investments and costs, then we will enter a calmer environment because it's the interest rates that cause cost inflation" in the first place, Erdogan said.