Istanbul A promise by the Turkish President has reversed the massive downward trend in the Turkish Lira. Within one night, the lira made up for the losses of the past three weeks. On Tuesday noon (local time), the exchange rate was quoted at 13.56 lira per US dollar, as on December 1 – an exchange rate jump of around 30 percent on the previous day.
The background to this is a promise by Head of State Recep Tayyip Erdogan to protect bank deposits in lira from exchange rate losses. The government wants to step in if the exchange rate losses are greater than the savings interest promised by the bank. In effect, this would mean that savers in lira always receive exactly the same return as if they exchanged their lira holdings for hard currency.
The government hopes that this will reduce the number of people changing their money into hard currencies. “From now on, no citizen will have any reason to exchange his lira savings for foreign currency in the face of any exchange rate fluctuations,” said Erdogan in a one-hour televised address on Monday evening.
In addition, exporters are to receive so-called futures from the Turkish central bank, with which the central bank assumes the exchange rate risk. In addition, a tax exemption for civil servants and minimum wage earners is to be introduced in the amount of the current minimum wage. The State In addition, it contributes a larger proportion of tax revenue to the state pension system and waives part of the tax on dividend payments from stock corporations to their investors.
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The lira has lost massive amounts of value against the euro and the US dollar this year. In the meantime, the exchange rate was over 18 lira per US dollar. The rashes have brought many people in Turkey to the verge of ruin. Recently, more and more Turks had changed their savings into euros or dollars for fear of losing value, thereby further weakening the lira. This vicious circle is supposed to end with the new plan.
Alpaslan Cakar, CEO of the Turkish Bankers Association (TBB) and General Manager of Ziraat Bank, announced that following the stimulus package announced by Erdogan, one billion dollars in banks was exchanged back into lira within one night. “You will receive the interest balance on the due date and at the time your money is received at that day’s exchange rate,” explained Cakar on Habertürk TV.
Overnight loss of 25 percent for dollar savers
TV cameras captured scenes at exchange offices on Tuesday morning. For example, a man could be seen who a few days ago had exchanged around 1000 lira at a rate of 18.30 for dollars. He had received around $ 55 for this. Now he exchanged the money back in lira – and received only 737 lira. “Even if I’ve lost money, I’m happy about it,” he said into the camera. “It is the right step.”
In the Turkish economy, reactions to his guarantee have been mixed.
(Photo: via REUTERS)
But not everyone in the country is likely to be such an ardent nationalist who is happy about an overnight loss of more than 25 percent. The TV presenter Tuncay Mollaveisoglu reported on viewers who told him they had sold their houses and exchanged the money for 17 to 18 lira per dollar for the US currency – for fear of further depreciation of the lira. “Now the rate is 13 lira per dollar,” said Mollaveisoglu on Tuesday morning on television. “These people will not be able to sleep. Isn’t that sad? “
How sustainable the reversal in the exchange rate will be remains to be seen. The lira rate on Tuesday lunchtime was around three percent weaker than in the morning. The price of gold in Turkey fell by a third overnight. On Monday you had to pay around 1000 lira for one gram of gold in the Istanbul bazaar. On Tuesday the price was 650 lira.
Meanwhile, the Bist100 stock index slipped for the third day in a row, this time by five percent. The index consists of many companies with high foreign business. Foreign exchange-earning companies including steel maker Eregli Demir and glass maker Sise ve Cam topped the loss list on Tuesday.
Savings in lira are becoming more attractive again – a kind of rate hike
The reactions in the Turkish economy have been mixed. Ultimately, the deposit guarantee works like a rate hike for deposits in lira, said economist Burcu Aydin Özüdogru from Bilkent University in Ankara.
Given the current inflation rate of 21 percent, the President of the Istanbul Chamber of Commerce ITO, Sekib Avdagic, urged traders to lower their prices immediately. “At this critical time, we will continue to stand by our government and our new economic model with all our might,” said Avdagic on Tuesday.
“The price jump could signal that the worst for the lira is over for the time being if the program can restore some of the confidence of retail lira depositors,” said Todd Schubert, head of fixed income research at Bank of Singapore, told Bloomberg news agency . However, he believes, “At the end of the day, the lira will tend to be volatile and subject to downward pressure until interest rates provide a credible anchor against inflation.”
A German manager who has lived in Turkey for several decades and advises companies also says: “In the foreign exchange markets alone, sums are traded that exceed Turkey’s annual gross domestic product. You can bypass these mechanisms for a few days, but not just bypassing them. “
The Turkish government continues to support its extremely unorthodox economic policies. With a mix of low interest rates, foreign exchange market interventions and Islamic ideas, Erdogan wants to tame the markets. “We promise our people a new vision,” said Erdogan on Monday. “I ask our people: Believe in us and trust us! You know where your trust has taken our country over the past 19 years. “
He rejected requests for early elections. The opposition in particular has been calling for this for several months, but recently the Turkish industry association had also clearly criticized economic policy.
More: Erdogan staggers from one crisis to the next