Lira plunges again after Erdogan rules out higher rates

Published December 20, 2021
Turkish President Recep Tayyip Erdogan. — Reuters/File
Turkish President Recep Tayyip Erdogan. — Reuters/File
A US one dollar banknote is seen next to Turkish lira banknotes in this illustration taken in Istanbul, Turkey. — Reuters/File
A US one dollar banknote is seen next to Turkish lira banknotes in this illustration taken in Istanbul, Turkey. — Reuters/File

Turkey's troubled lira shed a further five per cent against the dollar on Monday after President Recep Tayyip Erdogan cited Muslim teachings to justify not raising interest rates to stabilise the currency.

Erdogan has pushed the central bank to sharply lower borrowing costs despite the annual rate of inflation soaring to more than 20pc.

Economists believe the policy could see consumer price increases reach 30pc or higher in the coming months.

But Erdogan said in remarks aired by state television late on Sunday that his Muslim faith prevented him from supporting rate hikes.

“They complain we keep decreasing the interest rate. Don't expect anything else from me,” he said in the televised comments.

“As a Muslim, I will continue doing what our religion tells us. This is the command.”

Islamic teaching forbids Muslims from receiving or charging interest on loaned or borrowed money.

Erdogan has previously cited his Muslim faith in explaining why he believes interest rates cause inflation instead of tamping it down.

High interest rates are a drag on activity and slow down economic growth.

But central banks raise their policy rates out of necessity when inflation gets out of hand.

The Turkish lira has now lost nearly half its value in the past three months.

It was trading down nearly 6pc on Monday morning.

A dollar could buy 7.4 liras on January 1. It was worth 17.4 liras on Monday.

“You cannot run a modern economy integrated into the global economy on this basis,” economist Timothy Ash of BlueBay Asset Management said in a note to clients.

“Even Saudi Arabia really does not attempt full shariah compliant macro[economic] management.“

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

‘Source of terror’
Updated 29 Mar, 2024

‘Source of terror’

It is clear that going after militant groups inside Afghanistan unilaterally presents its own set of difficulties.
Chipping in
29 Mar, 2024

Chipping in

FEDERAL infrastructure development schemes are located in the provinces. Most such projects — for instance,...
Toxic emitters
29 Mar, 2024

Toxic emitters

IT is concerning to note that dozens of industries have been violating environmental laws in and around Islamabad....
Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...