(Bloomberg) — Turkey’s lira plummeted against the dollar as it strives for equilibrium in the wake of unprecedented rally last week spurred by the introduction of a new deposit tool to shield savers from a depreciating currency.
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The currency was traded 5.3% lower at 11.3366 as of 10:13am in Istanbul, following a run of gains that snapped its seven-week falling streak.
Under the mechanism announced last week, the government will make up for losses incurred by holders of lira deposits if the lira’s declines against hard currencies exceed bank interest rates. While the move spurred a surge for the currency last week, question marks remain over the policy’s possible impact on the budget and inflation.
President Recep Tayyip Erdogan said in interviews with broadcasters on Friday that the central bank won’t rush the process of stabilizing the exchange rate, saying it would will “retreat to where it came from gradually.”
Those comments may suggest that his government is seeking to guide the exchange rate below the 9 to the dollar level, said Ibrahim Aksoy, chief economist at HSBC Holdings Plc’s Turkish unit.
Upward Movement
Even so, Turkish residents are still trying to buy foreign currency, Aksoy said in a note for investors. “If the central bank’s possible sales of foreign currency diminishes, an upward movement in the dollar/Tl exchange rate may occur again.”
The central bank’s manufacturers’ confidence index fell in December, reflecting the effects of extreme volatility seen in the month. Capacity utilization rose to 78.7% from 78.1 in November, according to data published Monday by the monetary authority.
Turkey’s stock exchange applied the so-called uptick rule for the benchmark stock index Borsa Istanbul 100, and the index gained as much as 5% in early trading. The rule requires that short sales be conducted at a higher price than the previous trade.
Meanwhile, the health ministry said the omicron variant accounts for more than 10% of all cases found in major cities, but no additional restrictions will be imposed since hospitalizations are not significantly higher.
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