Istanbul: Turkey’s troubled Lira extended a violent recovery yesterday after President Recep Tayyip Erdogan introduced emergency currency support measures, eradicating nearly a month of historic losses. Benevolent Turkish leaders surprised the market and his political opponents late Monday by effectively linking the value of some lira bank deposits to the dollar.
Economists and many Turks were still trying to decipher how this new exchange mechanism works, or where the government gets the money to pay it. However, the impact on Lira, who lost 45% of the greenback from early November to late Monday afternoon, was immeasurable.
By the time Erdogan appeared on national television to announce his new economic proposal, it had fallen 10 percent that day. Hours after the end of Prime Minister Erdogan, it was up 20 percent. “We finally understand that the Erdogan administration is interested in exchange rates and circumvents capital restrictions,” said Timothy Ash, an economist at Blue Bay Asset Management, in a note to clients. “Prime Minister Erdogan asserted that he believed in the market, not the interest rate.”
Prime Minister Erdogan quoted Islamic rules for usury to defend his unconventional belief that high interest rates cause inflation. Economists almost universally agree that high lending costs actually lower prices by encouraging consumers to save and curb business spending.
Prime Minister Erdogan urged the central bank to lower policy rates well below the annual pace of rising consumer prices. It is currently 21% and is expected to rise significantly. This meant that the Turks who put the lira in their bank accounts had virtually lost their money. Economists were afraid that Turkey could see a bank run unless something was done quickly.
Erdogan’s new policy, called “indirect interest rate hike” by former financial adviser Mahfi Egilmes, aims to protect the value of Lira holdings from exchange rate fluctuations. It guarantees that the government will cover the depreciation of new lira deposits against the dollar as the investment matures.
The Treasury said individual Turks had to hold lira in banks for at least three months for the policy to come into effect. “If money is withdrawn from your account before the maturity date, you lose your (guaranteed) interest rights,” the Treasury said in a statement.
This policy aims to manage inflation expectations and make the Turks feel safer about lira assets. twitter.
Lira soared another 22 percent earlier yesterday. Then I erased all these gains before returning a few percentage points in the evening. Late yesterday, a dollar was worth about 13.0 lira. It has fallen nearly 40% from its all-time low, but has fallen 40% against the dollar since the beginning of the year.
Many analysts question whether Erdogan struggled to rebuild a depressed approval rate and settled on a sustainable economic model before the elections took place by mid-2023. .. “The state treasury will pay it with taxes,” former Turkish economic minister Ali Babacan told reporters. “This is the dollarization of the country’s economy.”
Economists also questioned whether the move could really protect the Turks from the sharp rise in living costs. “This scheme probably saved time and avoided an immediate crash in the banking sector, but did nothing to combat inflation,” said Jason Tobay, an analyst at Capital Economics. It’s a sign that policymakers are looking for ways to live on weaker lira and will not return to the orthodox school. ” – AFP
https://news.kuwaittimes.net/website/shock-moves-by-erdogan-revive-lira/ The shocking movement by Erdogan revives Lira