The lira exchange rate has been already under pressure in recent weeks. As economists at Commerzbank note, comments from President Tayyip Erdogan and Finance Minister Nureddin Nebati are, once more, stoking this fire.

More unhelpful comments

“Erdogan reiterated his opposition to rate hikes labelling those who cite a link between the benchmark rate and inflation to be either illiterate or traitors. Erdogan hinted at administered price controls and wage hikes to raise people’s real incomes.”

“Nebati made additional comments reiterating that the government will take steps to remove ‘inflation inertia’ from the economy – which probably hints at price controls and other ad hoc interventions.” 

“Since the broader FX market sees little likelihood of such policies working at all, or being able to address high inflation or spiralling inflation expectations in Turkey, such remarks only further expose the lira to vulnerability.”