Turkish lira hits record low before central bank meeting

President of Turkey Recep Tayyip Erdogan addresses the 77th session of the United Nations General Assembly, Tuesday, Sept. 20, 2022 at U.N. headquarters. (AP Photo/Mary Altaffer)

ISTANBUL (AP) — Turkey’s currency fell to a record low against the dollar before a central bank meeting on interest rates Thursday, expanding the pain for people who have seen their purchasing power erode during a series of economic shocks in the country.

The lira traded at 18.38 against the dollar, weakening further than the previous record low of 18.36 in December, before recovering to about 18.36.

Turkey has been following President Recep Tayyip Erdogan’s unorthodox belief that high interest rates cause high inflation, cutting borrowing costs despite consumer prices rising by an eye-watering 80.21% in August from a year earlier.

Central banks around the world are moving the opposite way in line with traditional economic thinking, aggressively raising rates to target soaring inflation.

The U.S. Federal Reserve hiked rates by a large three-quarters of a point for the third consecutive time Wednesday, followed Thursday by the Swiss National Bank’s biggest hike ever to its key interest rate. The Bank of England is weighing how aggressively Thursday to act as banks from Europe to Canada move quickly to rein in rising prices.

The Turkish central bank last month lowered its benchmark rate by 1 percentage point, to 13%. Official statistics released this month showed annual inflation was the worst among the Group of 20 major economies, but independent experts say inflation is actually much higher.

Critics also say the independence of the central bank and the official statistical institute have been undermined under Turkey's presidency.

Last year, the currency kept hitting record lows as the central bank lowered interest rates from 19%. When it finally hit 18.36 against the dollar, Erdogan announced extraordinary measures that he claimed would safeguard the lira.

The government encouraged people to swap their dollars for the lira and place them in a deposit account that would give the interest rate plus any lira depreciation against the dollar. Though the lira rebounded after that announcement to a high of 11.09, it steadily declined this year.