Daren Butler, Nevzat devranoglu

ISTANBUL, Reuters – The stock dropped 8% Tuesday as President Tayyip Turkey defended his recent rate cuts and promised to win the “economic war for independence”, despite much criticism and appeals to reverse.

After breaking records over the past 11 sessions, the lira plunged to as low at 12.49 against a dollar. The lira has seen a 40% drop in value since last week, with a nearly 20% decline at the start of this week.

Erdogan is urging the central bank to shift to an aggressive easing cycle. He claims this will boost exports and investment, and create jobs. However, Erdogan’s inflation rate has soared to nearly 20%, and currency depreciation acceleration accelerates. This is a significant blow to Turks’ earnings.

Semih Tumen (ex-deputy governor of central banks), was fired last month by Erdogan. She demanded an immediate return policy to protect the currency’s value.

He stated that “This absurd experiment has no chance for success” and called on the Twitter community (NYSE:).

Due to what analysts refer to as reckless and premature monetary ease, the lira has been one of the worst performers in emerging markets this fiscal year. The currency fell to 13.4035 against the euro.

As volatility gauges rose to their highest level since March when Erdogan abruptly fired the ex-hawkish chief of the central bank and appointed a similar critic to high rates, buyers seemed to be dry.

One forex dealer stated that spreads showed there was no liquidity on the market, citing Erdogan’s remarks as the primary driver.

For the first time in 2019, the benchmark 10-year bond yield surpassed 21%. Tradeweb data indicated that Turkey’s sovereign-dollar bonds were down more than 1 percent in the early trades.

Due to the sudden cheap valuations, the main shareindex jumped 1.5% when the lira fell.

‘EMERGENCY’ HIKES?

Last Thursday, the central bank reduced its policy rate by 100 basis points, to 15%. This was well below inflation at nearly 20% and signals further ease.

Analysts call it a risky policy error given the extremely negative real yields and the fact that almost all central banks are tightening or planning to tighten rates.

Analysts believe that an emergency rate increase will be required soon. There has been speculation regarding a possible cabinet restructuring involving LutfiElvan, the finance minister.

Erdogan spoke out in defense of the policy during a press conference on Monday night. He stated that tighter monetary policies would not reduce inflation.

Erdogan declared, “I reject policies which will contract our country and weaken it,” after a cabinet meeting. This prompted a slide in the currency’s value late into the night.

Societe Generale, (OTC:), stated on Monday that the central banking would have to announce an “emergency hike” as soon as possible and increase the policy rate by about 19% until the end 2022.

Guillaume Tresca (MI:) Insurance Asset Management senior EM strategist, said that “Risks are skewed to more depreciation.” He also stated that he expects Turkey’s turmoil will have a minimal impact on assets and other emerging markets.

“We don’t believe there is value in Turkish assets. There has been limited resistance from the authorities, which is a major difference between previous episodes of market stress. He noted that there is “a clear will to have a weaker FX.”