Turkish lira rockets after Erdogan’s promise

The Turkish lira rocketed off record lows on Tuesday after President Recep Tayyip Erdogan announced new economic model, Aljazeera reports.

In a speech late on Monday, Erdogan said if lira losses against foreign currencies exceed banks’ interest rates, the government will cover those losses for lira deposit holders.

“From now on, our citizens won’t need to switch their deposits from Turkish lira to foreign currency, fearing that the exchange rate will be higher,” he said.

Before the policy change, the lira had lost roughly 60 percent of its value against the US dollar, hitting an all-time low of 18.36 against the greenback on Monday. But Erdogan’s announcement late on Monday triggered a powerful rally that saw the lira strengthen to 11.09 on Tuesday morning before giving back some of those gains.

The head of the Turkish Banks Association, Alpaslan Cakar, told Turkish broadcaster Haberturk late on Monday that $1bn had already been converted to lire after Erdogan’s announcement.

Turkey’s central bank has slashed its benchmark interest rate by 5 percentage points to 14 percent since September, despite inflation running north of 21 percent.

The successive rate cuts triggered a run on the lira, wiping out the purchasing power and savings of common Turks, many of whom flocked to foreign currencies and gold in search of a safe haven.

MSH