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ISTANBUL (AP) – The Turkish currency made significant gains on Tuesday after President Recep Tayyip Erdogan announced extraordinary measures aimed at protecting lira deposits against the volatility seen in recent weeks and boosting Turkish confidence as they saw their purchasing power eroded.
The Turkish lira hit an all-time low of 18.36 against the US dollar on Monday, meaning it has lost more than 60% of its value against the US dollar this year. But it made overnight gains after Erdogan’s announcement, rebounding to a high of 11.09 on Tuesday and later trading at 13.01.
The currency has been on a rollercoaster ride since the country’s central bank began cutting interest rates in September as the pound hit record highs as Erdogan plunged into the policy of cutting rates despite the surge. of inflation.
The weakening pound has pushed up consumer prices, making imports, fuel and everyday items more expensive and leaving many in the country of over 84 million struggling to buy food and other basic necessities. Many flocked to foreign currencies and gold to hold onto their savings.
In response, Erdogan said on Monday that the government would cover losses for holders of lira deposits in cases where the depreciation of the pound against foreign currencies exceeds bank interest rates.
“From now on, our citizens will no longer need to transfer their Turkish Lira deposits into foreign currencies, fearing that the exchange rate will be higher,” Erdogan said.
But critics say the measure is unsustainable, straining the public budget by making it more vulnerable to currency fluctuations. They say it could cause more inflation.
Ali Babacan, Erdogan’s former finance minister and now leader of an opposition party, called the new measure a “hidden interest rate hike”.
The Turkish president is openly against high interest rates and believes they cause inflation, a thought that contrasts with established economic principles. He bases his theory on Islam.
Under Erdogan’s alleged influence, the central bank has cut interest rates by 5 percentage points since September, to 14%, despite annual inflation exceeding 21%. In recent weeks, the bank has sold dollars several times in an attempt to stop the depreciation of the pound, to no avail.
The Finance and Treasury Department announced details of Erdogan’s measure on Tuesday, saying the losses of lira deposit holders would be covered by three, six, nine and 12 month term deposit accounts with rates interest at or above the central bank’s key rate.
In a statement, the ministry said the exchange rates for the start and end of the filing would be compared and the higher number would be taken into account when calculating potential losses. Any bank wishing to join the system would be allowed to do so and the relevant daily US dollar rate would be announced each morning.
Erdogan also promised exporters on Monday that they would get forward exchange rates from the central bank to mitigate volatility risks, and he increased the government’s contribution to private pensions from 25% to 30%.
The head of the Association of Turkish Banks, Alpaslan Cakar, told Turkish broadcaster Haberturk on Monday evening that $ 1 billion had already been converted to lire after Erdogan’s announcement.
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