The currency lost 47% of its value against the dollar this year.
ISTANBUL, December 1, Reuters -- The Turkish lira held steady on Wednesday after tumbling to a new record low of 14 to the dollar overnight, as President Tayyip Erdogan doubled down on his pre-election strategy of sharp rate cuts despite soaring inflation and widespread criticism.
The lira was at 13.40 against the U.S. currency at 0731 GMT, which was flat against the close on Tuesday when it slumped 8.6%. The dollar was benefited from the hawkish U.S. Federal Reserve comments.
The currency has lost 47% of its value this year, down some 30% in November alone, eroding Turks' earnings and savings, upending household budgets, and even leaving them scrambling to find some imported medicines.
For the fifth time in less than two weeks, Erdogan defended monetary easing which most economists have called reckless, in an interview with state broadcaster TRT on Tuesday evening. He said there was no turning back from the new policy.
He said that exchange rates will be improved before the elections because of the fact that interest rates will fall markedly.
Polls are due to be done by mid- 2023.
It's a dangerous experiment that Erdogan is trying to run, and the market is trying to warn him about the consequences, said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
Imports are likely to increase in price as the lira falls, making inflation worse. Foreign investment could make it harder to finance growth. Credit default swaps are pricing in a higher risk of default, he added.
The investors are getting more nervous. The sell-off last month was among the largest suffered by the lira, similar to the crises that the major emerging market economy faced in 2018, 2001 and 1994.
Erdogan's AK Party, which came to power after the 2001 crisis, is seeing its support drop in opinion polls, which show that Erdogan would lose head-to- head with the most likely presidential opponents.
Since September, the central bank has cut its policy rate by 400 basis points to 15%, under pressure from Erdogan, leaving real rates deeply negative, with inflation near 20%. It is expected to reduce it again in December.
The opposition has called for a policy reversal and snap elections.
Economists say the depreciation and accelerated inflation, which is seen reaching 30% next year due to the currency devaluation, will derail Erdogan's plan. Virtually all central banks are raising rates or preparing to do so.
The November inflation data will be released on Friday, and a Reuters poll forecast that it will rise to an annual 20.7%, the highest level in three years. The inflation figures for Istanbul will be released on Thursday at 0900 GMT.
The PMI for manufacturing showed that factory activity grew by 52 from 51.2 a month earlier on Wednesday, with new export orders and output rising.