The Turkish currency was again in volatility this week after Tayyip Erdogan’s government and the Turkish Central Bank announced measures to protect local currency savings.
Yesterday, the Turkish lira was trading around 12 units to the dollar, although on Monday and Tuesday it reached a level of up to 18 lira to the dollar.
On Tuesday, the Turkish Central Bank said it will support the conversion of foreign currency deposit accounts to lira deposit accounts to further encourage reverse dollarization.
“In the event that residents, who already had a foreign currency deposit account, convert their accounts into time deposit accounts in Turkish lira, they will be eligible to benefit from the incentive,” said the central bank.
More than half of local savings is in foreign currency and gold, according to central bank data, due to the loss of confidence in the lira after years of depreciation.
Erdogan introduced a series of steps on Monday that would shift the burden of a weakened currency to the central bank and encourage the Turks to hold onto liras instead of dollars.
Government support for the currency sent the lira soaring 25% on Monday, although the trading volume was the lowest of the year.
Analysts and bankers warned that if the rally in the lira reverses, it could further fuel already high inflation and weigh on the deficit.
“Our initial calculation shows that any additional 12% depreciation of the lira on the interest rate of the Turkish currency could increase the budget deficit by around 1% of GDP over a six-month horizon,” JP Morgan analysts said in a note.
Turkish Finance Minister Nureddin Nebati said on Tuesday that the government would initiate legal proceedings against speculative market comments on social media after the recent currency volatility.
“We will never allow such treachery,” he said.
A source with knowledge of the matter said Monday’s measures were decided after the exchange rate reached “problematic” levels, adding that the government would handle the next period with care.
Reference-www.eleconomista.com.mx