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A man walks past a currency exchange agency in Istanbul, Turkey, on Nov. 24.OZAN KOSE/AFP/Getty Images

A sharply fluctuating Turkish lira flirted with record lows on Wednesday as the central bank said it had intervened to prop up the currency, while President Tayyip Erdogan reaffirmed his determination to stick with steep rate cuts.

The emerging market currency logged its second worst month ever in November, hammered by Mr. Erdogan’s widely criticized endorsement of sharp monetary easing despite soaring inflation.

The central bank – which Mr. Erdogan has overhauled and pressured this year – said it had intervened directly in the market “due to unhealthy price formations in exchange rates.”

The lira, which had earlier weakened as far as US13.87 to the dollar, rebounded to 12.42 – a rally of more than 8 per cent on the day. However, by 16:13 GMT, it was just 0.5 per cent firmer at 13.3485.

“We have no doubt that [CB] intervention will fail if the intention is to stabilize the currency, though it could provide some more two-way risk in the near term. In fact, the move worries us even more,” Brown Brothers Harriman said.

“Spending precious FX reserves suggests that the government is still holding the line in its economic policies, making the adjustment even more painful.”

Mr. Erdogan is putting his political future on the line with a risky wager that driving down interest rates will reverse his skidding opinion polls ahead of elections due by mid-2023, despite the heavy economic toll that a sliding lira has taken on voters.

The currency slumped to an all-time low 14.0 on Tuesday after Mr. Erdogan defended the economic policy and as the dollar benefited from hawkish U.S. Federal Reserve comments.

On Wednesday, for the sixth time in two weeks, Mr. Erdogan affirmed his commitment to low interest rates, vowing to fix inflation rapidly and telling Turks not to panic.

“Turkey has now abandoned the monetary policy based on high interest rates that caused several developing countries to remain stagnant,” Mr. Erdogan said, as data from Copley Fund Research showed global emerging market equity fund managers had cut their Turkish bank holdings to a record low.

“Instead, we have transitioned to a growth strategy ... Interest rates are an evil that make the rich richer and the poor poorer,” Mr. Erdogan told lawmakers from his ruling AK Party.

The currency has lost as much as 47 per cent of its value this year, sinking some 30 per cent in November alone, rapidly eroding Turks’ earnings and savings, upending household budgets and even leaving them scrambling to find some imported medicines.

Lira implied volatility gauges soared with the nine-month gauge hitting 35.8, revisiting the all-time record of August, 2018, while longer-dated Turkish dollar-denominated sovereign bonds maturing 2030 or beyond slipped as much as 0.9 cent in the dollar, Tradeweb data showed.

In an interview with state broadcaster TRT on Tuesday evening, Mr. Erdogan said there was “no turning back” from the new policy, defending an easing policy which most economists have called reckless.

Support for his AK Party is tumbling in opinion polls that show Mr. Erdogan would lose head-to-head against his most likely presidential opponents.

Under pressure from Mr. Erdogan, the central bank has since September cut its policy rate by 400 basis points to 15 per cent, leaving real rates deeply negative, with inflation near 20 per cent. It is widely expected to lower it again in December.

The opposition has called for an immediate policy reversal and snap elections.

Virtually all other central banks are raising rates or preparing to do so, and economists say the depreciation and accelerated inflation – which is seen reaching 30 per cent next year due in large part to the currency devaluation – will derail Mr. Erdogan’s plan.

A Reuters poll forecasts that November inflation, due on Friday, will rise to a three-year high of 20.7 per cent.

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