The Turkish lira experienced a surge in the market this week. The exchange rate of the lira against the US dollar rose sharply from around 18 to 1 on the 20th to a peak of around 10 to 1, and finally remained at around 11 to 1, an increase of more than 40%, back to the top The level at the end of the month.
Recently, the Lira exchange rate has repeatedly experienced violent fluctuations in the market. On the 16th, the exchange rate of the lira to the US dollar fell below the 15 to 1 mark; on the 17th, the exchange rate of the lira to the US dollar fell below the two integer marks of 16 and 17; on the 20th, the exchange rate of the lira to the US dollar fell below the 18 to 1 mark. Since this month, the Central Bank of Turkey has intervened in the foreign exchange market five times.
On the evening of the 20th, Turkish President Erdogan announced new bailout measures, and the lira exchange rate immediately turned its downward trend, rising sharply and gradually stabilizing. The bailout measures include a new financial alternative to provide compensation for the loss of local currency savings due to the depreciation of the lira, in order to reduce the impact of exchange rate fluctuations on depositors. At the same time, the government will take measures such as substantially increasing personal pension subsidies to alleviate the pressure on the cost of living of the people.
Turkish Finance Minister Nurddin Nebati said in an interview with a local TV station on the 23rd that small investors who shorted the lira suffered heavy losses this week due to the rebound in the exchange rate of the lira. The Turkish government had repeatedly warned them not to speculate.
Erdogan said on the 24th that Turkey has initiated a historic change in economic policy, developing its economy through investment, employment, production, and exports.
Erdogan previously stated that Turkey will adhere to a new economic model that prioritizes lower interest rates, employment promotion, and more investment. It has no intention or need to withdraw from the current exchange rate system, nor does it intend to withdraw from the free market, and will continue to follow current policies. The route stabilizes the exchange rate and the level of inflation.
Although the Turkish government vigorously promotes new economic policies, maintains non-traditional financial operational measures that lower interest rates, and promises to protect the interests of the people, some observers still question the rationality of the relevant practices, believing that foreign exchange risks and high inflation have placed a heavy burden on the people.
Eric Meyersen, professor of economics at Istanbul Bosnia and Herzegovina University, believes that the new bailout measures mean that foreign exchange risks are borne by public budgets and taxpayers. The gap between Turkey’s risk premium and other developing countries is at its highest level since 2012.
Murat Muratoglu, an economic reporter at the Turkish newspaper Spokesperson, said that the new bailout measures will put a burden on the Ministry of Finance, and this burden will be transferred to the people in the form of inflation. Nejati Dolu, an independent Turkish investor, believes that the new rescue measures and deposit policies are a hidden interest rate hike.
According to data from the Turkish Central Bank, Turkey’s November Consumer Price Index (CPI) rose 3.51% month-on-month, higher than market expectations of 3.00%, and rose 21.31% year-on-year.
(Originally titled “Turkey’s New Deal rescues the market, the lira rebounds sharply”)
Editor: Qin Qin