UPDATE 1-Turkey's lira falls to record lows after Erdogan says rates need to come down

(Adds lira decline, tourism, background)

ISTANBUL, June 1 (Reuters) – President Tayyip Erdogan said late on Tuesday that Turkey needs to lower interest rates and he had spoken to the central bank governor earlier in the day on the issue, sending the lira plunging to new record lows against the dollar.

“I am behind the same claim on this issue – I even spoke to the central bank governor today – we certainly need to lower interest rates,” Erdogan told a televised interview with state broadcaster TRT Haber.

“For that, we need to see July, August for interest rates to start coming down,” he said, adding that lowering interest rates would lift the burden on investments.

The comments by Erdogan, a self-described “enemy of interest rates”, sent the lira, which has already been under pressure in the past week, sharply down to fresh record lows against the dollar.

The currency weakened more than 4% to a record low of 8.88 after the comments. It later recovered some ground to stand at 8.67 by 2156 GMT, still down nearly 1.5% on the day.

Erdogan’s frequent calls for lower borrowing costs and his sudden sacking of the last three central bank governors have seriously eroded the central bank’s credibility.

The president sacked hawkish former governor Naci Agbal in March, which sent the lira down 12% against the dollar in a week.

The currency – by far the worst performer among emerging markets this year – was battered again last week on concerns over global inflation and an early election in Turkey.

Turkey, which relies on foreign currency income from tourism to shore up its current account deficit, risks another lost season this year as several countries imposed restrictions on travel due to the high number of COVID-19 cases.

Erdogan said Turkish officials were holding talks with Germany and Russia regarding tourism this summer, and that he would meet with British Prime Minister Boris Johnson at a NATO summit this month to discuss the issue.

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