Erdogan Unbowed by Critics, Leaving Little Stopping Lira’s Collapse

Turkish President Recep Tayyip Erdogan addresses his supporters during a ceremony in Istanbul, Turkey, November 5, 2021. (Reuters)
Turkish President Recep Tayyip Erdogan addresses his supporters during a ceremony in Istanbul, Turkey, November 5, 2021. (Reuters)
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Erdogan Unbowed by Critics, Leaving Little Stopping Lira’s Collapse

Turkish President Recep Tayyip Erdogan addresses his supporters during a ceremony in Istanbul, Turkey, November 5, 2021. (Reuters)
Turkish President Recep Tayyip Erdogan addresses his supporters during a ceremony in Istanbul, Turkey, November 5, 2021. (Reuters)

Little stands in the way of Turkey's currency collapse expanding into a deeper economic crisis after President Recep Tayyip Erdogan ignored appeals, even from within his government, to reverse policy, according to top officials and analysts.

Two people familiar with internal discussions said some government officials are uncomfortable with Erdogan's rate-cutting strategy and told him this. But they have not convinced him, and others have given up trying, they said.

This could set the stage for an intensifying showdown between rattled investors and local savers on one side and on the other, Erdogan - who has dismissed several ministers and top bureaucrats who previously were able to challenge and persuade him on some policy decisions.

"Some people who wanted to convey the opinion to the president that a different policy should be followed were not successful in this," said a senior official in the ruling AK Party, requesting anonymity.

"There is a very strict attitude from the presidency that the current practice will continue, interest rates will be kept low and inflation will decrease along with it."

The presidential office did not immediately respond to a request for comment.

Twice in the last week Erdogan has pledged publicly to see through his battle against high interest rates, dumping fuel on a fire sale of Turkish assets and sending the lira plunging as much as 23% in that period.

Though the currency recouped some losses on Wednesday, anxious Turks say the collapse has upended their family budgets and future plans.

Economists say if Erdogan doesn't reverse course and free up the central bank to hike rates, Turkey faces soaring inflation and possible corporate or bank defaults.

But unlike during 2018's currency crisis - when the central bank jacked up rates, albeit late, to stem the bleeding - there is little prospect of a quick intervention this time.

"The general view at the presidency is that if this policy continues for a few more months, the process will reverse and the exchange rate will fall ... so it appears it will remain in place," said the second source familiar with internal talks.

"The views of some officials ... who do not think these policies are right do not appear to be taken into consideration."

Goldman Sachs analyst Murat Unur said the risk of dollarization remains "very high" given the rush to purchase hard currencies, which already account for more than half of Turks' deposits.

"The current macroeconomic policy mix is not sustainable but the authorities have clearly shown that they prefer low rates and are willing to implement them even if this leads to significant pressure on the lira," he said in a note.

Erdogan unmoved

Erdogan has long espoused the unorthodox view that high interest rates cause inflation and has promised to prove the doubters wrong in what he calls an "economic war of independence" ahead of elections in 2023.

To test his theory, Erdogan has overhauled the central bank leadership and pressed it to slash the policy rate by 400 basis points since September, to 15%, despite inflation running near 20% - and much higher for basic goods like food.

Some of those who in the past advised Erdogan have recently criticized the monetary easing that the president says will stoke exports, investment and jobs.

Economists say inflation could blow through 30% unless steps are taken to reverse the currency depreciation, which raises import prices.

But there is no apparent circuit breaker, especially after Erdogan installed a like-minded governor, Sahap Kavcioglu, at the bank in March and fired the last remaining orthodox policymakers last month.

Treasury and Finance Minister Lutfi Elvan, also seen as a moderate, has kept out of the spotlight and there has been speculation he too could be ousted, though the Palace has not commented.

The central bank left the door open for another rate cut next month - a move Erdogan likely still supports.

Koc University-TUSIAD Economic Research Forum director Selva Demiralp said continued easing will only cancel out any benefits from higher demand.

"Even short term benefits from rate cuts cease to exist if the central bank insists on cutting rates and disregards inflation," said the former US Federal Reserve economist.

The central bank, already lacking credibility, said on Tuesday it would only intervene at times of "excessive volatility" - as the lira dove 15% in its second-worst day ever.

Analysts say authorities could redouble efforts to secure foreign currency swap lines from allies, which could help in any necessary interventions given official reserves remain thin.



Saudi Sovereign Wealth Fund Launches First Global Commercial Paper Program

 The Saudi capital, Riyadh (SPA) 
 The Saudi capital, Riyadh (SPA) 
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Saudi Sovereign Wealth Fund Launches First Global Commercial Paper Program

 The Saudi capital, Riyadh (SPA) 
 The Saudi capital, Riyadh (SPA) 

The Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, has launched its first-ever global commercial paper program, marking a significant step in strengthening its short-term financing capabilities and expanding its reach in international capital markets.

According to an official statement, the program allows for the issuance of commercial paper through Special Purpose Vehicles (SPVs). It consists of two sub-programs: one for the US market and another for the European market.

The program has already earned top credit ratings: Moody’s assigned it a Prime-1 (P-1) rating, the highest short-term grade, while Fitch Ratings awarded an F1+ rating, also its highest for short-term instruments.

Fahad AlSaif, Head of Global Capital Finance and Head of Investment Strategy at PIF, said the launch aligns with the Fund’s broader financing strategy. “This program reflects our flexible and effective approach to funding, designed to support our long-term investment priorities,” he noted.

Commercial paper is widely used in global financial markets as a tool for short-term liquidity management. PIF’s program is expected to enhance its agility in managing cash flow while complementing its long-term funding plans.

Mohammed Al-Farraj, Head of Asset Management at Arbah Capital, told Asharq Al-Awsat that the initiative highlights PIF’s commitment to robust liquidity management and its ambition to lead both domestically and internationally. He called the move a “strategic addition” to PIF’s funding ecosystem, noting that the strong credit ratings will allow the Fund to secure financing at competitive rates, positioning it to capitalize on key investment opportunities without being overly exposed to short-term market volatility or interest rate risks.

Al-Farraj added that the launch supports PIF’s strategy to diversify its funding sources and balance short-term needs with long-term goals. He pointed out that it will help drive major projects in critical sectors such as renewable energy, future industries, and advanced technology - key pillars of Saudi Arabia’s Vision 2030.

He also emphasized the program’s role in strengthening Saudi Arabia’s standing as a global financial hub and increasing its appeal to international investors.

The initiative follows PIF’s broader financing roadmap, which includes issuing green bonds - such as its landmark $3.5 billion sukuk offering - and reflects its continued pursuit of innovative, sustainable funding solutions to fuel the Kingdom’s economic transformation.