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Turkey: Erdogan unveils anti-dollarisation measures, Lira goes up

Turkish President Recep Tayyip Erdoga on December 16, 202 [Mustafa Kamacı/Anadolu Agency]
Turkish President Recep Tayyip Erdoga on December 16, 202 [Mustafa Kamacı/Anadolu Agency]

Turkey's lira mounted a massive turnaround late on Monday after President Erdogan introduced a series of steps that he said will ease the burden of the ailing currency on Turks while vowing to press on with a low-rates policy that led to the currency slide, reports Reuters.

The lira, which was down more than 11% at around 18.4 versus the dollar earlier, strengthened some 10% after the announcement by Erdogan. It traded at 14.90 versus the dollar at 1831 GMT.

The recovery comes as the dollar came under pressure as US Treasury yields slipped following a blow to Democratic spending plans in Washington and on concerns about the continued spread of the Omicron coronavirus variant.

Speaking after a cabinet meeting, Erdogan said the measures would ensure citizens would not have to convert their lira into foreign currency over the lira crash, including a deposit guarantee promise.

Turkey aims to rid itself of the shackles imposed by energy imports thanks to the natural gas found in the Black Sea - Cartoon [Sabaaneh/MiddleEastMonitor]

Turkey aims to rid itself of the shackles imposed by energy imports thanks to the natural gas found in the Black Sea – Cartoon [Sabaaneh/MiddleEastMonitor]

"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.

"With the interest rate cuts, we will all see how inflation will start falling within months," he said. "This country will no longer be a heaven for those adding to their money with high-interest rates, it will not be an import haven."

He also called on "everyone with money, access to finance" to contribute to investments and pledged steps to aid exporters and pensioners.

The president's push for 500 basis points of interest rate cuts since September has set off Turkey's worst currency crisis in two decades, with the lira crashing 35% in the last 30 days.

Economists have called his low-rates model reckless and said inflation would soar to beyond 30% next year.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said the current economic outlook was like "a truck with no brakes", adding Erdogan's newly announced measures diverged significantly from the usual market practices.

"Turkey is going into a complicated process, they are no longer playing the game by the rules," Ozkardeskaya said.

"Each unorthodox step taken is adding a level of complexity to the strategy and makes it impossible to predict a fruitful outcome for dealing with the actual crisis."

READ: Turkey raises minimum wage by 50% amid high inflation

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