The Turkish government launched its latest plan to protect lira savings from losses through depreciation against the dollar after deciding that the 18.00 USD / TRY level was a “red line”according to four sources who spoke to Reuters. The Turkish government came up with the scheme last week, but decided to wait for the pair to reach what they called the “absurd” level of 18.00 before revealing the new scheme.
It should be remembered that the lira rose more than 25% in value on Monday against the US dollar, with USD / TRY falling from above 18.00 to 13.00 and has continued to fall to 12.00 since then. That still leaves it around 30% above early November levels, but also more than 30% below Monday’s highs. The Turkish government’s decision to reimburse the losses suffered by holders of lira savings as a result of exchange rate fluctuations was seen by the markets as a “back-door rate hike”. The main difference with a traditional rate hike is that the interest rate increase that Turkish savers will get over the CBRT rate will come from the government and will depend on fluctuations in the exchange rate.
Still, it should encourage short-term savings, which may help alleviate some of Turkey’s suffering from inflation. The big concern now will be whether the Turkish government will be able to find the money to reimburse savers for losses suffered by the depreciation of the lira exchange rate.
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