Turkey’s currency sank to all-time lows on Wednesday after President Tayyip Erdogan said he had urged the central bank’s governor to cut interest rates in the next two months despite rising inflation, in the latest blow to the bank’s credibility.

The lira - by far the worst performer in emerging markets this year largely due to perceived political interference in monetary policy - fell by some 4% in early trade to 8.88 versus the dollar before recouping most of its losses.

On a previously scheduled call with investors on Wednesday, Central Bank Governor Sahap Kavcioglu sought to ease concerns over premature policy easing, saying they were “unjustified”.

Yet after Turkey’s president abruptly fired three bank chiefs in two years, many analysts say that Erdogan and not Kavcioglu ultimately calls the shots on interest rates.

“I spoke to the central bank governor today - we certainly need to lower interest rates,” Erdogan said in a televised interview with state broadcaster TRT Haber late on Tuesday.

“For that, we need to see July, August for interest rates to start coming down,” he said, adding that that would lift the burden on investments and help economic recovery from the coronavirus pandemic.

Erdogan’s frequent calls for monetary stimulus, years of double-digit inflation and the central bank’s rapid leadership turnover have eroded confidence in policy-making and left the economy more vulnerable to a financial crisis, analysts say.

The currency was down less than 1% at 8.595 against the dollar at 11:53 GMT, slightly encouraged by Kavcioglu’s comments.

It has lost 16% since mid-March when Erdogan, a self-described “enemy of interest rates”, ousted a hawkish and well-respected central bank chief and installed Kavcioglu, who had previously criticised tight monetary policy.

The policy rate has since held steady at 19% though analysts expect a cut in the third quarter. Still, inflation has risen above 17% and the currency depreciation adds price pressure via heavy imports.

“Erdogan is getting impatient (and) openly and clearly... putting pressure on his central bank governor,” said Esther Reichelt, analyst at Commerzbank.

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The currency has shed half its value in three years and slid again last week on concerns over possible early elections and global inflation, which could hurt vulnerable emerging markets if major central banks start raising rates.

Wall Street bank Citi advised clients to bet on further lira depreciation. Two small ratings agencies told Reuters that Erdogan’s comments left the economy more vulnerable to outside shocks given high foreign debt.

On his first of two planned investor calls on Wednesday, Kavcioglu said the bank was committed to price stability and predicted a “significant” fall in inflation around September or October.

“The unjustified market expectations of premature easing should completely cease,” he said, according to a central bank readout.

Turkey’s economy rebounded better than most others from the pandemic and is expected to grow by about 5% this year.

But the current account deficit remains swollen and foreign currency reserves are badly depleted after costly market interventions last year. Adding to risks, travel restrictions could derail another tourism season, sapping more foreign revenues.

Enver Erkan, chief economist at Tera Yatirim, said the lira weakness suggested interest rate hikes rather than cuts may be more appropriate for Turkey despite Erdogan’s call for stimulus.

“The world is entering an inflation cycle,” he said. “Cutting rates faster than inflation causes other macro imbalances, starting with lira instability.”

The central bank has policy meetings scheduled for June 17, July 14 and Aug. 12.

(Writing and additional reporting by Jonathan Spicer; Editing by Dominic Evans and Nick Macfie).