ISTANBUL: The lira slid as much as 4% against the dollar on Tuesday as Turkey girded for inflation to rise further after touching a 19-year peak, even as President Tayyip Erdogan said the worst of the economic turmoil was left behind.
The currency weakened as far as 13.5 to the dollar and stood at 13.4 by 1239 GMT, off more than 3%.
Economists predicted the lira weakness and a series of administered price rises - including for utilities and wages - would continue lifting inflation this year after data on Monday showed the annual rate surged to 36.1% last month.
Hakan Kara, former chief economist at Turkey’s central bank, said overall January inflation should rise by 5 percentage points due to the direct and indirect contributions from the administered price hikes.
The lira logged its worst year in 2021 since Erdogan came to power nearly two decades ago by weakening 44%, by far the worst performer in emerging markets. It hit a record low of 18.4 two weeks ago before rebounding after the government unveiled a deposit-protection scheme.
Erdogan said he would not abandon Turks to “extreme” price hikes and volatile exchange rates. The fluctuating forex rates were “thorns, rocks thrown in front of us,” he added.
“We will rescue our country from this image that it does not deserve by removing the bubble over inflation too,” Erdogan told members of his ruling AK Party.
“God willing, we have left the worst behind us. From now on, it is time to reap the benefits of our efforts, to show our people that we are approaching our goals.”
Erdogan’s “new economic programme” of sharp interest rate cuts and an emphasis on exports and credit, despite soaring prices, set off Turkey’s second currency crisis in four years. The lira shed as much as 50% of its value in the last few months alone, sending import and other prices higher.
Kemal Kilicdaroglu, chairman of the main opposition Republican People’s Party (CHP), said the government itself had imposed most of the heaviest price hikes, including on electricity and gas.
“Extreme prices have one actor... and that person is Erdogan.”
RISING INFLATION
The central bank has cut its policy rate by 500 basis points to 14% since September, under pressure from Erdogan who overhauled the bank’s leadership last year.
Many economists call the monetary easing reckless given the inflation is driven primarily by the lira weakness.
Prices should continue rising in coming months in part due to a series of administered rises including minimum wage, utilities, road tolls and alcohol and tobacco taxes.
“The December inflation spike was largely driven by the FX passthrough and imported energy costs,” said Kara, a Bilkent University professor. “The authorities may implement some price controls and deploy additional tools to prop up FX depreciation. But it is not clear how these measures will alleviate the demand channel,” he said, predicting inflation may exceed 40% by March.
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