The Turkish president stated that there will be more interest rate cuts in 2025, causing the lira exchange rate to drop sharply

Zhitong Finance learned that the Turkish lira was the worst-performing emerging market currency on Monday, as comments from Turkish President Recep Tayyip Erdoğan regarding interest rates raised concerns about Turkey returning to the unconventional monetary policy he previously supported. The lira fell 0.6% against the dollar, depreciating about 16% year-to-date. In contrast, the MSCI Emerging Markets Currency Index was essentially flat on Monday, with a slight decline for the entire year of 2024. After the Turkish central bank cut its policy rate for the first time since 2023, Erdoğan commented that interest rates will definitely decline next year, stating, "2025 will be a landmark year in this regard." Analysts now expect rate cuts at every policy meeting in 2025, although officials have warned against an uninterrupted easing cycle. Haluk Burumcekci, an economist at Istanbul's Burumcekci Research and Consulting, stated that Erdoğan's remarks "could trigger market concerns about a potential rate-cutting process that is incompatible with inflation." He noted that the statement "casts a shadow over the new Turkish central bank management, which has completed the rate hike process with higher credibility, making it more difficult for them to work through the more critical easing process tests." Meanwhile, the Turkish stock market rose slightly, while the MSCI Emerging Markets Index fell for the third consecutive day, continuing the weak trend seen at last Friday's close, as the prospect of smaller rate cuts in the U.S. brought U.S. Treasury yields close to multi-month highs. Additionally, noteworthy in emerging markets on Monday, the South Korean stock market briefly fell 0.6%, with Jeju Air Co. shares dropping 16% to a record low after one of its planes crashed on Sunday, resulting in 179 fatalities. Its parent company, AK Holdings Inc., saw its stock price decline by 12%. The index has now fallen for six consecutive months, marking the longest losing streak since 2008. The plane crash occurred amid intense political turmoil, with two South Korean leaders impeached within two weeks. On Monday, South Korean investigators applied for an arrest warrant for the impeached Yoon Suk-yeol, who refused to appear in court. After South Korean authorities pledged to stabilize the market, the won briefly strengthened against the dollar but remained in a downward trend. Citigroup analysts stated that the Constitutional Court may support the impeachment of Yoon Suk-yeol, which could lead to a presidential election in South Korea in May next year. They added in a report that this means "political uncertainty may persist for a longer time due to the differing motivations of various parties regarding the election timing."