Turkey's lira fell further on Monday before modestly recovering following a speech on state television by Turkish President Recep Tayyip Erdogan. He cited Islam as a reason for not raising interest rates despite the currency's fast depreciation and widespread inflation.
Erdogan has frequently urged the central bank to cut borrowing prices despite a 20% annual inflation rate. According to mainstream analysts, the conclusion of Erdogan's Islamic-infused currency experiments could result in consumer inflation reaching 30% or higher in the coming months.
Erdogan, though, emphasized on state television that his decision to demand the central bank maintain Islam inspired low-interest rates. Additionally, he promised exporters assistance and greater government contributions to pension funds.
"As a Muslim, I will continue to follow the dictates of our religion. This is the directive "Erdogan asserted.
How much peril does the lira face?
The lira fell more than 11% against the dollar at one point during Monday's trade to about 18.40, an all-time low, before regaining some of those losses later in the day. Numerous Turks are unable to afford essential goods and services.
Following Erdogan's speech and incentives to boost lira-denominated savings, the lira rose almost 10% and traded at around 14.90 against the dollar. However, the lira's gains come when the dollar is under pressure.
The lira has lost 45 percent of its value since the beginning of November. Trading was momentarily delayed Monday on the country's leading stock exchange in Istanbul for the second consecutive session as the lira crisis spread throughout the economy.
According to foreign diplomats in Turkey, Erdogan believes economic development would enable him to win the next election, scheduled for mid-2023, extending his tenure as president of the Turkish republic into the third decade.
What is Erodgan economics like?
Erdogan believes a weaker currency will boost exports, but orthodox economists advise promoting interest rates to counteract inflationary pressures on the economy. He repeated his commitment to contain inflation and bring it down to less than 4%, a frequently unfulfilled promise.
Islamic banking is founded on the belief that charging interest on loans or borrowed funds constitutes usury. This is not the first time Erdogan has mentioned Islam as a source of inspiration for his monetary management.
Erdogan called it an "economic war of independence." last month. He stated that his objective was to reduce Turkey's dependency on foreign direct investment and the fluctuating cost of energy imports such as oil and natural gas required to sustain a burgeoning economy.
Economic squabbles with business executives
Business executives who have historically stepped out to Erdogan's defense say they've had enough. Over the weekend, the powerful TUSIAD group of big exporters wrote a letter denouncing Erdogan's monetary policy stance.
"The policy choices implemented here are not only creating new economic problems for businesses, but for all of our citizens," TUSIAD stated.
"It is urgent that we assess the damage that has been done to the economy, and quickly return to the implementation of established economic principles, within the framework of a free market economy." TUSIAD stated.
Erdogan retaliated against the business lobby after chairing a Cabinet meeting. A new tax was agreed upon, and other steps to boost the lira's value versus the dollar and euro.
"You are scheming to topple the government," Erdogan declared. "Do not hold out your hopes in vain."
