Beijing Business Daily (Reporter Tang Yitian) On December 20, local time, Turkish President Erdogan2 stated that the government will take a series of measures to stabilize the exchange rate and deal with inflation.
Market data shows that in the overnight New York session, the Turkish lira continued its slump in recent weeks, and it fell more than 10% against the US dollar to a record low of 18.36 lire.
However, after the announcement of the new policy on Monday, the exchange rate of the Turkish lira against the U.S. dollar, which had fallen sharply, rebounded sharply. It surged by more than 30% in the past three hours, reaching 12.27 lira, recording the largest single-day volatility in history.
In a speech after the cabinet meeting that day, Erdogan said that the Turkish government will introduce a new financial alternative to provide compensation for the loss of domestic currency savings due to the depreciation of the lira, in order to reduce the impact of exchange rate fluctuations on depositors. In addition, the government will also take measures such as substantially increasing personal pension subsidies to alleviate the pressure on the cost of living of the people.
Erdogan said that Turkey does not intend to change the exchange rate mechanism, has no plan to regress from the free market, will introduce new tools to deal with foreign exchange fluctuations, and will continue to stabilize the exchange rate and inflation in accordance with the current route. If the lira falls against the hard currency more than the interest rate promised by the bank, the government will make up for the losses of the lira deposit holders.
Erdogan also stated that the withholding tax on Turkish bonds will be abolished and plans to reduce the corporate tax rate by 1 percentage point. Erdogan added that the central bank’s interest rate cut will reduce inflation in “a few months.” He reiterated that fluctuations in exchange rates and prices are not based on economic fundamentals.
Brendan McKenna, foreign exchange strategist at Wells Fargo Bank in New York, said: “Erdogan’s latest statement may help boost the Turkish Lira exchange rate, but I think it depends on credibility and whether depositors believe this is a practical option. “At present, Turkey’s government agencies are generally low in credibility, so getting strong support from lira savers may face challenges.”Return to Sohu to see more
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