Early this morning, in yet another session of panicked selling, the Turkish Lira crashed to new record lows to just shy of USDTRY 3.60, momentarily going bidless as the currency plunged nearly 400 pips in seconds, after Turkish President Recep Erdogan said the path for investors will be opened with lower interest rates, and urged the central bank to imitate Japan and U. S. where rates are low: ‘why should we go around with 14-15 percent?’
The answer is simple: the currency tends to drop when an economy is seen as weak, the political regime unstable, or – yes – a central bank cuts rates, which Turkey, as shown in the chart below, can not afford if it hopes to maintain a stable economy with the lira already at all time lows.
Normally, any other country would find itself in a dilemma: how to lower rates as per the president’s demands to stimulate investment and the economy, without killing the economy… but not Erdogan. As AFP notes, the Turkish president “urged” his fellow Turks on Friday to convert their foreign currencies into gold and lira to stimulate the country’s economy as the lira continued its slide against the dollar.
This post was published at Zero Hedge on Dec 2, 2016.