However, the average maturity of all accounts falls short of that stipulation, raising questions over how effective the policy will be. The emergency measures apply to foreign exchange-protected lira deposits with a maturity between 3 and 12 months. The president pledged that the government will cover the losses incurred by holders of lira-denominated deposits due to foreign-exchange fluctuations. While this marked a 4.2% month-on-month appreciation, the currency was still down 43.4% over the same day a year prior. On 7 January, the lira ended the day at TRY 13.15 per USD. However, the rally was relatively short-lived as the currency began to lose ground again in the week after, likely due to skepticism over the effectiveness of the new plan, which is intended to reduce dollarization.
The lira rallied strongly immediately after the new measures were unveiled, trading at TRY 10.65 per USD on Friday 24 December. On 20 December, President Recep Tayyip Erdogan announced a new, radical plan to shore up confidence in the country’s battered currency. The Turkish lira suffered in the days ahead of the Monetary Policy Committee meeting on 16 December, and it ended the following day at a new record low of TRY 16.42 per USD. More broadly, emerging markets have been under pressure as investors flee to safe-haven assets and as a combination of Russia's invasion of Ukraine, China's economic strains and rising recession fears lead to historic outflows from EM.Turkey - Exchange Rate Turkish lira ends 2021 on a rollercoaster ride Inflation is expected to ease somewhat to around 70% by year-end, a separate Reuters poll showed. The renewal of record lira lows is a question of when, not if." "Turkey is facing even higher inflationary pressures than last year, as it heavily depends on imports of energy, metals, and agricultural products. "But with running inflation, meagre foreign reserves at the central bank, and high prices for agricultural products and raw materials, any attempt to stop the lira from weakening has only served to irritate market participants," he added.įollowing last month's correction, market bears are unlikely to retreat until the lira reaches record levels near 18.30 per dollar, Kuptsikevich added. "Currency interventions were seen stopping the lira's fall near 17.35 per dollar in June and early July," said Alex Kuptsikevich, senior market analyst at FxPro. On Thursday, Turkey's central bank is set to hold a monetary policy meeting where it likely to hold its benchmark interest rate at 14% for a sixth straight meeting, a Reuters poll showed, despite a global tightening cycle and annual inflation at a 24-year-high. "Turkey has had high inflation and external imbalances, but we're now adding to the mix potential fiscal weakness due to the FX deposit scheme - policies have been trying to buy time, hoping things normalize, tourism returns and FX stabilizes, but it was a combination of bad skill and bad luck," Zouk added. In recent months since the crisis, the government and central bank have ramped up measures to reverse the tumbling foreign-exchange rate, including placing restrictions on lending to firms with more than $1 million in foreign currency cash and implementing a state-backed FX-protected deposit scheme. "A lot of investors are fed up with Turkey because this is a country that is pursuing the polar opposite of what needs to be done in terms of macroeconomic policy," said Nafez Zouk, EM sovereign debt analyst at Aviva Investors.