Turkey's currency whipsaws on news government will protect lira deposits
Turkey’s lira seesawed on Monday, mounting a massive turn-around off fresh lows after President Erdogan announced new steps to bolster the currency.
Erdogan said the government would protect bank depositors who might be forced to convert liras into dollars to stave off losses from declines in the Turkish currency.
The measures would see the government match depositors’ losses should any drop in the lira against hard currencies exceed the gains in the interest rates provided by banks.
Before the announcement, the lira was down more than 10 percent at an all-time low of 18.4 against the dollar. It later shot back to as far as 12 - its biggest intra-day rally on record - to end the day up 25 percent.
Turkey’s currency has been in free fall for months, losing more than half its value against the dollar since September. Inflation currently stands at 21 percent.
The drop in the lira has crushed the purchasing power of ordinary Turks, many of whom have rushed to hold dollars in the hope of protecting themselves against further losses in their currency.
Economists say the crisis is largely of Erdogan’s own making, as he holds the view against mainstream economic thinking that high interest rates cause inflation.
In the face of rising inflation, he has pushed the central bank to lower interest rates. He has also defended the moves, saying a cheaper currency will fuel economic growth and boost Turkey’s exports.
'Whatever the religious decrees require'
On Sunday, Erdogan doubled down on those commitments, defending his opposition to higher interest rates based on his Muslim faith.
“Don’t expect anything else from me,” he said in a speech on Sunday night. “As a Muslim, I will continue to do whatever the religious decrees require.”
Those comments prompted a crash in the lira, with it breeching 18 to the dollar on Monday morning.
However, following the announcement later in the day that steps would be taken to ease pressure on holders of the lira, it rebounded sharply.
"We are presenting a new financial alternative to citizens who want to alleviate their concerns stemming from the rise in exchange rates when they evaluate their savings," Erdogan said on Monday.
It was not immediately clear how the measures would be implemented, and whether they will be enough to ease market concerns.
At the same time as he announced the steps, the Turkish leader continued to promote his unorthodox economic view, stating: "With the interest rate cuts, we will all see how inflation will start falling within months.”
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