ISTANBUL, Turkey — Turkey's troubled
lira extended on Tuesday a stirring recovery that erased nearly a month of
historic losses after President
Recep Tayyip Erdogan introduced emergency
currency support measures.
اضافة اعلان
The mercurial Turkish leader stunned markets
and his political opponents late Monday by effectively tying the value of some
lira bank deposits to the dollar.
Economists and many Turks were still trying
to decipher how this new exchange mechanism will work or where the government
will get the money to pay for it.
But the impact on the lira — which had lost
45 percent against the greenback from the start of November to late Monday
afternoon — was monumental.
It was trading down 10 percent on the day by
the time Erdogan appeared on national television to announce his new economic
proposals.
It was trading up 20 percent a few hours
after Erdogan had finished.
"We finally understood that the Erdogan
administration cares about the exchange rate, and has avoided capital
controls," economist Timothy Ash of
BlueBay Asset Management said in a
note to clients.
"Erdogan affirmed that he believes in
markets, albeit not interest rates."
'Indirect rate hike'
Erdogan has cited Islamic rules against
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
curbing business spending.
Erdogan has pushed the central bank to slash
its policy rate too far below the annual pace of consumer price increases — now
at 21 percent and expected climb substantially higher.
This meant that Turks who put liras in their
bank accounts were effectively losing money.
Economists feared that Turkey could see a
potentially paralyzing run on the banks unless something was done quickly.
Erdogan's new policy — dubbed an
"indirect interest rate hike" by former treasury adviser Mahfi Egilmez — is meant to defend the value of lira holdings against fluctuations in
the exchange rate.
It guarantees that the government will cover
any depreciation of new lira deposits against the dollar when the investments
mature.
The finance ministry said individual Turks
had to hold their liras in the bank for at least three months for the policy to
take effect.
"In case the money is withdrawn from
the account before the maturity date ... the right of (guaranteed) interest
will be eliminated," the finance ministry said in a statement.
'No shift to orthodoxy'
The policy is designed to manage inflation
expectations and make Turks feel safer about their lira assets.
"If the exchange rate increases by 40
percent, and the interest rate increases by 14 percent, 26 percentage points
will be paid in compensation," Egilmez explained on Twitter.
The lira shot up by a further 22 percent
early Tuesday. It then erased all those gains before climbing back a few
percentage points in the evening.
A dollar was worth around 13.0 liras late
Tuesday.
It has clawed back nearly 40 percent from
its historic low but is still down 40 percent against the dollar since the year
started.
Many analysts question whether Erdogan —
struggling to rebuild his sagging approval ratings before an election due by
mid-2023 — has settled on a sustainable economic model.
"The treasury will pay for it with
taxes," former Turkish economy minister
Ali Babacan told reporters.
"This is the dollarization of the country's economy."
Economists also expressed doubt about
whether the move could truly protect Turks from rapid cost of living increases.
"This scheme likely has bought time and
avoided an immediate crash in the banking sector but it has done nothing to
fight inflation."
Analyst
Jason Tuvey of Capital Economics
interpreted the moves as "a sign that policymakers are trying to find ways
to live with a weaker lira and won’t shift back to orthodoxy."
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