ISTANBUL — The Turkish lira hit new lows on Thursday after the Central Bank reduced interest rates for the fourth successive month in what has become President Recep Tayyip Erdogan’s increasingly personal battle to turn an ailing economy around.
The lira plunged to 15.60 against the dollar in the hours after the rate cut, down 5 percent in the day. The cut was widely expected since Mr. Erdogan announced his intention last month to lower rates despite soaring inflation of more than 20 percent.
Mr. Erdogan has resisted following generally accepted policy of raising interest rates to contain inflation, choosing instead to drive rates down in an effort to encourage growth with an eye on elections 18 months away. He has promised to increase production and employment in what he casts as an “economic war of independence.”
Driving the lira down in value appears to be part of a policy to make Turkey more competitive in export markets. The lira has lost nearly 50 percent of its value this year.
Yet the currency crash has hit Turkish citizens with almost daily price increases and inflation rates of 21 percent, although analysts say unofficial rates are double that.
In a sign of how urgent the economic situation has become, soon after Thursday’s rate cut, Mr. Erdogan announced in a televised news briefing at the presidential palace that he would be raising the minimum wage in the new year by 50 percent.
“With this raise, we proved our determination to prevent our employees being crushed by price increases,” he said. He promised to prevent speculation on the currency and to end the volatility. “There is no need for such speculation. Our money is here, and it is the Turkish lira. We will not allow it to crash.”
Mr. Erdogan has taken increasing personal control over the country’s economy and monetary policy, changing the head of the Central Bank several times in recent years and explaining that because he was responsible to voters for the economic performance of the country, he should be involved in the decision making.
Yet it is his repeated interference and unorthodox policies that have scared investors and rattled markets.
Nureddin Nebati, the Turkish finance minister, reiterated Mr. Erdogan’s announcements in his own comments on Twitter. “We said, ‘We will not subjugate the minimum wage earner to inflation.’ We did not, we do not,” he wrote. The government was also reducing the tax burden on employers, he wrote.
But Mr. Erdogan’s political opponents were quick to cast criticism, while analysts pointed to the contrast with Britain and Norway, which both raised interest rates on Thursday to counter rising inflation in their economies, moves that were met favorably by the markets.
“This is now a deliberate evil,” Ugur Gurses, a financial analyst and former central banker, tweeted about the latest government moves. “It’s a shame for the country.”
A former prime minister, Ahmet Davutoglu, in light of the day’s crushing fall of the lira, derided the increase in the minimum wage. The wage had decreased in value by 110 U.S. dollars, which was more than the increase was worth, he said. “The word for taking $110 out of people’s pockets by pretending to give them 1,425 TL is ‘stealing’!” he said.
Mustafa Murat Kubilay, a financial analyst, said Mr. Erdogan’s latest moves were aimed at bolstering production and exports in the first quarter of next year to put him ahead for elections.
“As imports decrease because of increasing poverty, there would be a current account surplus,” Mr. Kubilay said. “The Central Bank reserves will increase, and, in the medium term, the aim is for currency price to stabilize.”
“Sacrificing income tax and the increase in the minimum wage is an indication that we have entered the election process,” he said.
The thinking was that if the pandemic were finished, along with Turkey’s drought, by next summer, and with the tourism and the construction sectors reviving with low-interest-rate loans, then conditions would be set for snap elections, Mr. Kubilay said.
But the plan was fraught with weaknesses, he said. He warned that there could be significant money flows out of the country, difficulty procuring imports needed for the country’s exports, and even a possible social explosion as people experienced deepening poverty.