Erdogan unveils extraordinary measures to protect Turkish lira and its economies


(Bloomberg) – The government of President Recep Tayyip Erdogan has announced extraordinary measures to strengthen the Turkish lira, including the introduction of a new program that will protect savings from fluctuations in the local currency.

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The government will compensate for the losses suffered by holders of pound deposits if the declines in the pound against hard currencies exceed the interest rates promised by banks, Erdogan said after chairing a cabinet meeting in Ankara.

The pound reduced its decline – which had extended to 10.6% – after Erdogan’s announcement and was trading down 5.9% to 17.4240 per dollar by 8:45 p.m. in Istanbul.

“From now on, none of our citizens will need to transfer their deposits from Turkish Lira to foreign currencies due to their fears that exchange rate fluctuations” will nullify the gains in interest payments, Erdogan said.

The measures aim to dampen the demand for dollars from retail investors and end a three-month turmoil for the national currency. The pound has lost more than half of its value against the US dollar since September, with declines accelerating after Erdogan last month unveiled a business model that relies on lower borrowing costs and less currency. Dear.

But his announcements show that the ensuing chaos in Turkish markets has given policymakers pause for thought, who are now introducing new measures to shore up some of the lost confidence in the pound.

Below is a summary of the other steps announced by Erdogan on Monday:

  • The authorities will offer non-deliverable futures to help exporters mitigate currency risks resulting from high levels of volatility.

  • “Turkey has neither the intention nor the need to take any step back from the free market economy and the exchange rate regime,” Erdogan said.

  • The withholding tax for investments in government-issued lira banknotes will be reduced to 0% from the current 10%.

  • The government will pay 30% of all contributions made by private sector workers into the voluntary pension system, up from 25% currently.

In the president’s eyes, Turkey can break free from dependence on foreign capital flows by abandoning old policies that favored higher interest rates and strong inflows. At the heart of his ideas is the belief that falling interest rates will also curb consumer price growth – the exact opposite of consensus opinion among central bankers around the world.

He’s been putting this idea to the test since September, when the central bank started cutting interest rates in the face of soaring consumer prices. The ensuing monetary stance ultimately left the pound pegged, with the currency sinking to new record lows almost every day.

The currency collapse fueled consumer prices almost overnight, leading to soaring inflation that supermarket workers could barely keep up with with the label changes. In recent weeks, Turks and working-class retirees have started lining up in long lines outside municipal stalls to get subsidized bread, as major business associations across the country have started publicly attacking the government for destabilizing the economy. ‘economy.

(Updates with a new comment from the President, read.)

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