Due to investors’ continued concerns about Turkey’s monetary policy, Monday, the Lira fell by nearly 8% against the U.S. dollar. However, after the state-backed multi-billion-dollar market intervention, Lira surged by more than 50% last week.
Last week, the government made up for foreign exchange losses on certain deposits, supporting the Lira.
On Monday, its exchange rate against the U.S. dollar fell to a low of 11.6. Later, it narrowed the decline to 11.35 before 0800 GMT.
Last week’s gains brought the Turkish currency back to its mid-November level.
Last Monday, due to concerns that a series of interest rate cuts planned by President Tayyip Erdogan would lead to an inflation spiral, the Turkish Lira against the U.S. dollar fell to a record low after a months-long decline.
Currently, the Turkish Lira Is Down 35% Compared to The End of Last Year
However, Erdogan announced a plan late last Monday. The Ministry of Finance and the Central Bank will compensate the loss of lira deposits exchanged for foreign currency, triggering the biggest increase in the lira intraday.
Official data shows that the Turks did not sell many dollars on Monday and Tuesday last week. It means that they played a minor role in the rise. At the same time, state intervention caused more than US$8 billion in losses to the central bank last week.
Data show that the central bank sold 1.35 billion U.S. dollars of direct foreign exchange intervention measures from December 2 to 3 to support the Lira to the dollar exchange rate, which was about 13.5 at that time.
Erdogan said that after the announcement of the anti-dollarization plan, the Turks showed confidence in the local currency, and their deposits increased by 23.8 billion lire.
However, after accumulating a large amount of U.S. dollars in the previous week, individual Turkish depositors held 163.7 billion U.S. dollars in hard currency last Tuesday, which is almost nothing compared to the total of 163.8 billion U.S. dollars on Monday and Friday. Variety.
Last week, with the central bank’s support, traders and economists said that state-owned banks backdoor sales of U.S. dollars. This gesture greatly boosted the Turkish Lira.
Under Erdogan’s pressure, although the inflation rate has risen above 21%, the central bank has cut the policy interest rate by 500 basis points to 14% since September. Economists predict that prices will increase by more than 30% next year, partly due to the depreciation of the Lira.