Turkey’s central bank has intervened to support the lira for the first time in seven years after weeks of sharp falls that dragged the currency to a record low against the dollar.

Policymakers intervened in foreign exchange markets following what they called “unhealthy price formations”, pushing the lira up as much as 8.5pc.

The currency has been into freefall in recent weeks, after President Recep Tayyip Erdogan started pushing for interest rate cuts despite surging inflation in the country.

In a speech ahead of the central bank’s announcement, he said rate cuts would continue in the run-up to the elections in 2023, causing the currency to drop further.

Mr Erdogan, who has undermined the central bank’s independence in recent years,  said Turkey needed to wean itself off “hot money” from foreign investment that could be quickly withdrawn and focus on home-grown industry.

“Our country has now come to the point of breaking this vicious cycle, and there is no turning back from here,” he said.

“The high interest rate policy imposed on us is not a new phenomenon. It is a model that destroys domestic production and makes structural inflation permanent by increasing production costs. We are ending this spiral.”

Mr Erdogan’s approach to monetary policy runs against the conventional economic logic that raising interest rates helps to curb inflation. Last week, the Bank of England Governor, Andrew Bailey, said the Turkish leader was taking an “unusual” stance.

Turkey recorded strong growth during the third quarter, with GDP expanding by 2.7pc amid a post-lockdown rebound.

Maya Senussi from Oxford Economics said the turmoil for the lira puts that strong growth “firmly in the rear-view mirror”, with rising prices taking a roll on consumer spending.

Analysts from Rabobank said: “Not fighting inflation does appear to have boosted the country’s competitive position, but the ultimate cost of its policy choices could be significant.”

Sahap Kavcioglu, governor of the Central Bank of Turkey, is the fourth since Mr Erdogan was sworn in with expanded powers in 2018. 

Mr Kavcioglu has made repeated adjustments to forward guidance over recent months that have paved the way for interest rate cuts.

The plunging value of the lira, which has lost nearly a third of its value since Turkey’s central bank began cutting rates in September, has increased costs for regular Turks, some of whom are now using dollars instead.