- Erdogan announced an unorthodox new policy to compensate losses on domestic TRY accounts due to TRY/USD depreciation.
- Traders said the policy amounted to “hidden” rate hikes, funded via the public purse, and USD/TRY crashed 25% from highs.
- The pair is now trading in the 13.50 area having been as high as the 18.30s earlier in the session.
The Turkish lira underwent a jaw-dropping recovery on Monday after Turkish President Recep Erdogan announced unorthodox new policies to alleviate the impact of exchange rate volatility on Turkish savers. The President announced a raft of new economic measures, but the one that got the most attention was a mechanism where the government will offset losses to domestic TRY accounts as a result of the depreciation of the TRY/USD exchange rate. Some analysts and traders have said that these anti-dollarisation measures amount to a “hidden” interest rate hike, funded via the public purse.
According to Bloomberg, the USD/TRY spot rate is currently at 13.50 a staggering near 20% decline from last Friday’s closing levels around 16.40. The decline is even more impressive given that USD/TRY was at one point trading in the 18.30s. That means the lira has gained 25% in value from its intraday lows.
Judging by the market reaction, President Erdogan appears to have pulled a rabbit out of the hat with his latest policy of essentially paying additional interest to Turkish savers via the public purse. But Turkey is very much in unprecedented territory when it comes to monetary policy right now. The government has taken on a potentially huge liability in promising to insure savers against exchange rate losses and analysts will be wondering how this impacts the government’s fiscal position going forward. Some have pointed out that the Turkish government has now exposed itself to a vicious cycle where, if the value of the lira falls too much, they will have to borrow ever more of it to fund the losses of investors.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Recommended content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.