ISTANBUL (Reuters) - President Tayyip Erdogan remained defiant in the face of the sliding lira on Monday, promising that interest rates need to be lowered to “save” investors, comments likely to only deepen market concern about Turkey’s monetary policy and inflation.
The lira TRYTOM=D3 has lost 6.5 percent of its value against the dollar this year on worries that Erdogan's drive for lower interest rates could lead to looser policy even as inflation remains not far off a 14-year high.
Erdogan, a self-described “enemy” of interest rates, wants to see borrowing costs lowered to boost investment and spur the economy. Investors, worried about inflation and the yawning current account deficit, say the central bank needs to decisively tighten to put a floor under the lira.
“How will there be investments if you do not bring down interest rates? We call this an investment-based incentive system,” Erdogan said in a speech in Ankara, where he announced a $34 billion investment incentive package to help Turkish companies.
“You have to save the investor from high interest rates so that these investments could be made. When there is investment, there is employment, production and exports.”
The lira TRYTOM=D3 touched an all-time low of 4.0755 to the U.S. dollar before recovering to trade at 4.0510 by 1300 GMT. It also touched a record low of 5.001 against the euro EURTRY=.
Investors are also looking ahead to current account data for February, which is due to be released on Wednesday.
Turkey’s yawning current account gap - one of the biggest in the G20 - makes it reliant on foreign investment flows. Moody’s cited concerns about the current account when it cut Turkey’s sovereign debt rating further into junk territory last month.
The lira is the fourth-worst performer so far this year among more than 20 emerging market currencies.
The $34 billion incentive package includes exemptions from customs tariffs and government support for employee insurance premiums, Erdogan said.
Reporting by Ezgi Erkoyun and Ali Kucukgocmen; Writing by David Dolan; Editing by Daren Butler