The lira is making a big comeback after Erdogan unveiled anti-dollar measures

This chart taken on November 23, 2021 in Istanbul, Turkey shows the Turkish lira banknotes. REUTERS / Murad Sezer / Illustration

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Ankara, Dec 20 (Reuters) – The Turkish lira rebounded sharply from its session late on Monday, following President Tayyip Erdogan’s introduction of a series of measures aimed at easing the Turkish currency’s weak currency. -The rate policy led to the collapse of the lira in the first place.

The lira, which had previously fallen more than 10% to 18.4 against the dollar, rose 10.8% that day in response to Erdogan’s announcement. It traded at its largest daily trading range since it last touched 12 against the dollar against the dollar.

“I imagine the market lira is too short and Erdogan’s announced measures to protect the savings of domestic investors from lira fluctuations have provided some inspiration to cover those shorts,” said Shawn Osborne, Scotiabank’s chief FX strategist.

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Speaking after the cabinet meeting, Erdogan said the measures would ensure that citizens do not have to convert their lira into foreign currency.

“We offer a new financial alternative for citizens who want to alleviate the anxiety caused by rising exchange rates when they evaluate their savings,” Erdogan said.

“With interest rate cuts, we will all see how inflation starts to fall in a few months,” he said. “This country will no longer be a paradise for those who add money at high interest rates, it will no longer be an import haven.”

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He called for “everyone with money, access to finance” to contribute to investments and pledged to help exporters and retirees.

“Today’s action is based solely on the Turkish government’s announcement that it will protect against currency fluctuations,” said John Doyle, vice president of dealing and trading at FX payment company Tempus Inc.

“The most important thing is that the government says it will compensate for the loss on lira deposits. If lira banks exceed the promised interest rates, the government does not say how they will implement the scheme,” Doyle said.

Erdogan’s push for a 500-point cut in interest rates since September has pushed Turkey to its worst. Currency crisis In two decades, the lira has fallen 40% in the first five weeks of last Friday. read more

Economists have called his low-rate model irresponsible and said inflation will rise to more than 30% next year.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said the current economic outlook was “like a truck without brakes” and that Erdogan’s newly announced measures were significantly different from conventional market practices.

“Turkey is going through a complicated process and they are no longer playing by the rules,” Oskardeskaya said.

Islamic interest

Erdogan defended his economic policy on Sunday and compared the currency fluctuations to attacks on the country’s economy rooted in the 2013 nationwide protests. read more

“We lower interest rates. Do not expect anything else from me. As a Muslim, (Islamic teaching) I will continue to do whatever is necessary,” he points to Islamic finance, in which high interest, or usury, is generally avoided.

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Despite widespread criticism and a rapid downturn in the economy – including the rapidly eroding incomes and savings of the Turks – Erdogan continued to prioritize exports and lending ahead of his economic plan.

Under pressure from the president, the central bank cut rates again by 100 basis points last week, sending real rates deeper into the negative territory, giving red flags to investors and depositors. read more

Inflation rose to 21% last month and is expected to cross 30% next year.

Even after today’s sharp gains, the lira has lost half of its value against the dollar this year, and remains the worst performer among peers for three consecutive years due to damage to monetary credibility, analysts say.

In an effort to slow sales, the central bank has intervened five times this month in an effort to address so-called “unhealthy” prices. Bankers’ calculations show that more than $ 6 billion has already been sold from declining foreign reserves.

“If anything, (Erdogan’s announced) measures will put an end to unrestricted breaches, but for the lira to trade at the level seen last year, further action from the central bank is needed,” Ima Sammy said. Monex FX Market Analyst in Europe.

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Duan Kumrukshu’s report in Ankara Additional report by Nevsat Devronoklu and SK Ergoin; Written by Mark Jones in London, Saqib Iqbal Ahmed in New York and Jonathan Spicer by Rodrigo Campos and Is Toxby Editing by Shaunak Dasgupta, Jason Neely and Matthew Lewis

Our standards: Thomson Reuters Trust Principles.

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