With the Turkish Lira in freefall Turkey’s President Recep Tayyip Erdogan announced extraordinary measures to save it from the depths Monday. Turkey is introducing a new program that will protect savings from the prices moves and gave the TRY a reprieve. The lira collapse accelerated with Turkey Central Bank sharp rate cuts. Erdogan vows to win his so called “economic war of independence”. With Turks not affording bare necessities as inflation runs rampant from the collapsed currency and elections in sight push has come to shove.
Erdogan continues to dig his heals in from the widespread criticism and pleas to reverse course on rates.
“From now on, none of our citizens will need to switch their deposits from the Turkish lira to foreign currencies because of their concerns that the exchange rate” fluctuations might wipe out gains from interest payments, Erdogan said.
Following the announcement, the lira pulled back from the morning’s collapse was trading down 5.9% at 17.4240 per dollar at 8:45 p.m. in Istanbul.
A summary of other steps announced by Erdogan Monday via Bloomberg:
- Authorities will offer non-deliverable forwards to help exporters mitigate foreign-exchange risks emanating from the elevated levels of volatility.
- “Turkey has neither the intention nor the need to take the slightest step back from the free market economy and the foreign-exchange regime,” Erdogan said.
- Withholding tax for investments in lira notes issued by the government will be reduced to 0% from 10% currently.
- Government will match 30% of all contributions made by private-sector workers to the optional pension system, up from the current level of 25%.
The currency was in free fall before the announcement. Turkey’s central bank has now lowered the benchmark by 500 basis points since September. The cuts drove down the lira, which weakened past 15 per dollar for the first time on Thursday and was over 17 by Friday as investors anticipated another rate reduction.
The currency was worth about half its value at the beginning of the year making imports at least doubly expensive. Turkey’s economy is heavily dependent upon imports for producing goods from basic foods to textiles, so the rise of the dollar against the lira has a direct impact on the price of consumer products.
From The TradersCommunity News Desk