High volatility in Turkey’s Lira continued on Tuesday as investors evaluated extraordinary measures announced by President Recep Tayyip Erdogan and the central bank to protect local currency savings precisely from such unprecedented swings. Lira weakened as much as 8.6% intraday on Tuesday and bounced back as much as 18.5%, closing the session up 6% at 12.4 against the US dollar. On Monday, Lira soared about 25% following Erdogan’s announcement. As a result, the currency’s expected price swings in the next month jumped to a record high, highlighting uncertainty about the scheme.
Erdogan on Monday announced extraordinary measures, effectively an indirect interest rate hike, to stabilise the currency market. The measures were aimed to mitigate retail investors’ demand for hard currencies and end the crisis. On Tuesday, the central bank said it would support the conversion of foreign currency deposit accounts into lira-denominated ones to further encourage reverse dollarisation.
Central bank data showed over 50% of locals’ savings is in foreign currencies and gold because of deteriorating confidence in the lira after years of depreciation. At its low, the local currency was down about 60% on the year. Analysts warned that Erdogan’s current economic policy, which emphasises low interest rates, is unsustainable and would push inflation to 30% next year from 21% in November 2021.
