UPDATE 1-Turkish lira hits new low after Erdogan's latest call for rate cuts
* President points to July or August for monetary easing
* Political interference has eroded central bank credibility
* Currency shed 16% since cenbank chief ousted in March (Adds economic context, risks, policy meetings)
ISTANBUL, June 2 (Reuters) – President Tayyip Erdogan sent Turkey’s lira currency to new all-time lows on Wednesday after he called for interest rate cuts in the next two months and said he spoke to the central bank’s new governor about it.
The lira – by far the worst performer in emerging markets this year largely due to perceived political interference in policy – fell by some 4% in thin early trade to 8.88 versus the dollar before recouping some losses.
“I spoke to the central bank governor today – we certainly need to lower interest rates,” Erdogan said in a televised interview with state broadcaster TRT Haber late on Tuesday.
“For that, we need to see July, August for interest rates to start coming down,” he said, adding that lowering rates would lift the burden on investments and help along recovery from the coronavirus pandemic.
Erdogan’s frequent calls for lower borrowing costs and his abrupt removal of three central bank chiefs in less than two years has eroded Turkey’s monetary credibility and left it more vulnerable to high inflation and financial crisis.
The currency was at 8.615 against the dollar at 06:56 GMT.
It has lost 16% since mid-March when Erdogan, a self-described “enemy of interest rates”, ousted a hawkish and well-respected central bank chief and installed a like-minded critic of tight policy.
New bank Governor Sahap Kavcioglu has since held the policy rate at 19% though analysts expect a cut in the third quarter. Still, inflation has risen above 17% and the currency depreciation adds price pressure via heavy imports.
‘LATE NIGHT INTERVENTION’
Central bank leaders are set to hold calls with investors later on Wednesday to discuss policy and economic prospects.
“This late night intervention by Erdogan talking about rate cuts is clearly unhelpful for Kavcioglu heading into his investor calls,” said one foreign investor.
The currency has shed nearly half its value in three years and slid again last week on concerns over global inflation and an early election.
Turkey’s economy rebounded better than most others from the pandemic and should grow by about 5% this year.
But its foreign debt and current account deficit remain swollen and its foreign currency reserves are badly depleted after costly market interventions last year. Adding to risks, travel restrictions could derail another tourism season, sapping more foreign revenues.
“Prospects of central bank interest rate cuts are unfortunately causing Turkish Lira to fall sharply,” Robin Brooks, chief economist at the Institute of International Finance, said on Twitter.
“This fall in the lira means tighter financial conditions and weaker growth,” he said.
The central bank has policy meetings scheduled for July 14 and August 12.
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