President Recep Tayyip Erdogan’s assertions that interest rates would be decreased and stop Turkey’s nearly 19% inflation from rising further have sparked fresh jitters in financial markets as the Turkish leader appears bent on spurring economic growth at the expense of costly side effects.
Erdogan’s remarks last week came as a signal that he intends to pressure the central bank to lower rates, sticking to his unconventional view that high interest rates cause high inflation. Following his remarks, the Turkish lira, which was already under pressure from global trends, weakened as low as 8.64 to the dollar Aug. 6 — it had been 8.56 — and has stayed in that region since (it was around 8.65 to the dollar Aug. 11). The downtick is expected to continue in the coming days, raising the specter of a fresh dollarization wave.
