Lira Plunges As Turkey Cuts Interest Rate Again

The Turkish lira on Thursday hit fresh lows after the central bank fired the latest salvo in President Recep Tayyip Erdogan's "economic war of independence" by cutting interest rates for the fourth successive month.

The reduction of the main rate to 14 from 15 percent comes in the face of an annual inflation rate that has surged past 20 percent and is expected to climb even higher over the next few weeks.

The lira was trading down more than five percent after the announcement.

"The accompanying statement suggests that the easing cycle will be on pause early next year but, even so, the lira will remain under pressure and capital controls are likely," the Capital Economics consultancy said in a research note.

The lira has shed more than half its value since January – and nearly 40 percent since the start of November – as policymakers bow to Erdogan's wishes to bring down borrowing costs despite soaring inflation.

This unorthodox approach has wiped out the value of people's saving and thrown swaths of Turkish society below the official poverty line.

A US dollar could buy three liras in 2016 and 7.43 liras on January 1. It was worth 15.60 liras on Thursday after opening the week at around the 13.80 mark.

Erdogan has called for "patience" and argued that his approach will ultimately make Turkey less dependent on outside factors such as the scale of foreign investment and the price of imported commodities.

He has also promised to raise the net minimum wage by 50 percent starting next year. It will stand at 4,250 liras – now worth around US$275.

"We are determined to end (price fluctuations) as soon as possible," he said in a televised address. (AFP)