Turkish lira charges after Erdogan’s anti-dollarization plan by Reuters

ANKARA (Reuters) – It gained more steam and rose 7% on Tuesday, following a historic 25% recovery from record lows, after President Tayyip Erdogan said he would guarantee local currency deposits in the face of market turmoil after presenting a plan.

The currency fell further in a volatile trade to 12.21 against the dollar at 0559 GMT from 13.15.

In a speech at the end of Monday, Erdogan said the series of steps would ease the burdens of the currency catastrophe of recent weeks and encourage Turks to have savings in lira rather than dollars.

He did not specify how the government would finance the potential costly and inflationary initiative.

Ahead of the forecast, the pound fell more than 10% against the US dollar to a low of 18.4. It then returned to 12 – the highest record ever recorded – and ended the day up 25%.

About a billion dollars were sold in the markets after his announcement, the head of the Turkish Banking Association said. The banker estimates that savings of about $ 1-1.5 billion were converted into lira on Monday night.

Fearing an inflationary spiral caused by Erdogan’s push to ease money, the lira has fallen to record lows this year, losing only 40% of its value in the last month. At its lowest, it fell by about 60% a year.

A quick bounce Erdogan said the promise of a deposit guarantee would have caused the Turks to dissuade them from converting their savings into hard currency.

“We present a new financial alternative to citizens who want to alleviate concerns about rising exchange rates when assessing their savings,” Erdogan said after a government meeting while repeating the defense of the low-rate policy that initially affected him. lyre slide.

Although the government considers the revival of the pound to be a great victory, economists have called its economic program based on low interest rates irresponsible and said that inflation – currently above 21% – will be 30% next year.

Under pressure from Erdogan, the central bank has cut rates by 500 points since September.

Some economists have said the new measures are effectively covered by rate hikes, which may ultimately not stop the selling pressure, and while tightening the backlog of the Treasury.

“It could have dangerous consequences,” said Refet Gurkayna, head of Bilkent University’s economics department in Ankara.