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.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2022 Teletrade-DJ International Consulting Ltd
Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with the Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.