This website collects cookies to deliver better user experience. Cookie Policy
Accept
Sign In
The Wall Street Publication
  • Home
  • Trending
  • U.S
  • World
  • Politics
  • Business
    • Business
    • Economy
    • Real Estate
    • Markets
    • Personal Finance
  • Tech
  • Lifestyle
    • Lifestyle
    • Style
    • Arts
  • Health
  • Sports
  • Entertainment
Reading: Turkey Rolls Out Economic Rescue Plan, Reversing Lira’s Spiral
Share
The Wall Street PublicationThe Wall Street Publication
Font ResizerAa
Search
  • Home
  • Trending
  • U.S
  • World
  • Politics
  • Business
    • Business
    • Economy
    • Real Estate
    • Markets
    • Personal Finance
  • Tech
  • Lifestyle
    • Lifestyle
    • Style
    • Arts
  • Health
  • Sports
  • Entertainment
Have an existing account? Sign In
Follow US
© 2024 The Wall Street Publication. All Rights Reserved.
The Wall Street Publication > Blog > World > Turkey Rolls Out Economic Rescue Plan, Reversing Lira’s Spiral
World

Turkey Rolls Out Economic Rescue Plan, Reversing Lira’s Spiral

Editorial Board Published December 21, 2021
Share
Turkey Rolls Out Economic Rescue Plan, Reversing Lira’s Spiral
SHARE

ISTANBUL—Turkey’s currency mounted a dramatic, partial reversal from a monthslong collapse on Tuesday after President Recep Tayyip Erdogan announced a rescue plan to encourage Turks to put their money back into the lira.

Contents
The fall in the lira has caused turmoil in the Turkish economy.President Recep Tayyip Erdogan has yet to explain how his government will pay for the new mechanism.Newsletter Sign-upThe 10-Point.

In a televised speech late Monday, Mr. Erdogan said the government would guarantee returns on lira deposits at a rate similar to those on foreign currency, making up for any further depreciation in the lira. The Finance Ministry released details of the policy Tuesday.

The move generated an instant, powerful burst of demand for the lira, sending it up as much as 18% against the dollar Tuesday, a startling move in foreign-exchange markets where most currencies move less than a percentage point a day. The rise only partially unwinds the spiral in the currency, which has lost as much as half its value this year, much of the fall in the past few months.

It was unclear whether the measures would assuage deep distrust for the currency among Turkish consumers and businesses. They have watched as the fall in the lira ate into savings and caused turmoil in the economy. Investors and ordinary Turks have been rushing to move their money into foreign currencies and gold.

“We are offering our citizens, who want to eliminate their concerns arising from the increase in currency rates while making use of their savings, a new financial alternative,” Mr. Erdogan said.

The new instrument will consist of special “currency rate protected” accounts with a minimum of three months, the finance ministry said. The government plans to compensate for any depreciation in the lira between the time the account is open and when it is closed, the statement said.

The fall in the lira has caused turmoil in the Turkish economy.

Photo: Ercin Erturk/Anadolu Agency/Getty Images

It will work like this: Turks will deposit their savings in the special accounts at any commercial bank for a period of three, six, nine or 12 months, with a minimum interest rate the same as the benchmark rate set by the central bank. At the end of that time, if the value of the lira declines against the dollar in excess of that rate, the government will fill the gap, depositing the difference in lira in the same account, according to the finance ministry.

That means that if the lira fell 25% annually against the dollar—a nine percentage point difference from the current policy rate of 14%—the central bank would make up that difference for savers.

Morgan Stanley estimates that a monthly depreciation rate of 10% in the lira would imply an extra cost of roughly 19 billion lira, equivalent to $1.4 billion, to the government in a month. If the lira strengthened, there would be no extra cost.

Economists and investors said the plan was a risky strategy to stabilize the currency, one that will use government funds to motivate investments in the lira. The government also hasn’t specified how it will pay for the new policy over the long term and some fear the effort will require heavy government borrowing or de facto money printing from the central bank.

The new mechanism doesn’t address the root cause of the currency’s depreciation this year, which is Mr. Erdogan’s own economic policies, analysts and investors say. The president has pressured the central bank into cutting interest rates four times in the last four months despite rising inflation, causing investors and the Turkish public to lose confidence in the lira.

“It is the end of a series of ad hoc maneuvers,” said Alp Erinc Yeldan, an economist at Istanbul’s Kadir Has University. “It does more harm than good. It’s a huge income transfer to the banking sector, all of which could have been handled by increasing interest rates.”

In a sign that the relief was limited, Turkey’s stock market resumed its multiday slide after news of the government plan, triggering two circuit breaker halts in trading. It was the third day of trading in a row in which the Borsa Istanbul exchange was forced to halt trading to prevent further losses.

The new effort to stabilize the lira is part of a series of what economists say are contradictory policies set in motion by Mr. Erdogan. For months Mr. Erdogan and other government officials have argued for lower interest rates on the grounds that a weakened lira would encourage exports. The central bank has also spent billions in foreign currency to prop up the lira since early December, attempting to halt a currency crisis triggered by the interest-rate cuts.

Mr. Erdogan has also said he is against high interest rates for religious reasons, citing an Islamic prohibition on usury, an argument he repeated on Sunday in a speech that triggered another selloff of lira assets.

President Recep Tayyip Erdogan has yet to explain how his government will pay for the new mechanism.

Photo: Emin Sansar/Anadolu Agency/Getty Images

While the new policy has stemmed some of the immediate depreciation in the lira, economists and investors expect that the lira will continue to depreciate over time as inflation remains elevated and foreign investors are still unwilling to hold Turkish assets.

“It’s kind of like an indirect way of raising the interest rate on deposits without calling it an interest-rate increase,” said Lee Hardman, a currency analyst at Japanese bank MUFG. “Ultimately it doesn’t really change the longer-term trend for the lira to continue to weaken.”

If enough people buy into the new mechanism, it could put the government’s finances under strain in the long term, analysts said.


Newsletter Sign-up

The 10-Point.

A personal, guided tour to the best scoops and stories every day in The Wall Street Journal.


“It may provide some stability at least for the short term, but it comes at the expense of exposing public finances to potentially unlimited risk. So it’s a very poor trade-off,” said Murat Gulkan, chairman of OMG Capital Advisors, an Istanbul-based investment firm.

The new policy is also likely designed to rescue Mr. Erdogan’s popularity, analysts said. The government’s approval rating has declined along with the currency as working- and middle-class Turks struggle with rising prices of food, fuel and medicine. It allows Mr. Erdogan to provide relief to ordinary Turks, without backing down from his insistence on lower interest rates or imposing unpopular capital controls. The next scheduled elections are in 2023 but could be called earlier.

“They are just trying to buy some time up until the elections by postponing the currency crisis,” said Ugur Gurses, a prominent Turkish economist. “It’s the one rabbit in the hat.”

As the Federal Reserve and other central banks around the world deal with rising inflation amid the economic recovery from the pandemic, Turkey—where the rate is currently over 20%—offers a warning. Soaring inflation has led to economic turmoil after years of broad growth. Photo: Sedat Suna/Shutterstock

Write to Jared Malsin at [email protected] and Caitlin Ostroff at [email protected]

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

TAGGED:PAIDWall Street PublicationWorld News
Share This Article
Twitter Email Copy Link Print
Previous Article NASA’s Webb Telescope to See Deeper Than Hubble to Edge of Universe NASA’s Webb Telescope to See Deeper Than Hubble to Edge of Universe
Next Article AT&T to Sell Digital Ad Tech Platform Xandr to Microsoft AT&T to Sell Digital Ad Tech Platform Xandr to Microsoft

Editor's Pick

Alyssa Farah Griffin: ‘The View’ Co-Host is Pregnant With Child #1!

Alyssa Farah Griffin: ‘The View’ Co-Host is Pregnant With Child #1!

Studying Time: 3 minutes The View co-host Alyssa Farah Griffin is pregnant! On ‘The View,’ Alyssa Farah Griffin breaks the…

By Editorial Board 3 Min Read
Arturo Gatti Jr. Reason behind Dying: Son of Boxing Legend Passes Away at 17
Arturo Gatti Jr. Reason behind Dying: Son of Boxing Legend Passes Away at 17

Studying Time: 2 minutes Aruturo Gatti Jr. — an aspiring boxer and…

3 Min Read
Russia for Business: Experts Who Help Drive Decisions
Russia for Business: Experts Who Help Drive Decisions

Amid sanctions and the restructuring of global supply chains, understanding the logic…

4 Min Read

Oponion

Enhancing EV Charging Infrastructure with rSIM Connectivity

Enhancing EV Charging Infrastructure with rSIM Connectivity

Evology Charging and CSL Group lengthen partnership with the implementation…

October 18, 2024

China finishing up customs fraud, commerce skilled says: ‘Little question’

Daniel Pickard explains frequent misconceptions about…

February 13, 2025

This Is Your Signal to Cease Saving Your Life for Trip

Once I journey—particularly alone—I slip into…

June 20, 2025

Deals Are Booming, but Antitrust Scrutiny Has Deal Traders Worried

After a record run for mergers,…

February 12, 2022

Supreme Court docket lifts restrictions on LA immigration stops set after brokers swept up US residents

By LINDSAY WHITEHURST, Related Press WASHINGTON…

September 8, 2025

You Might Also Like

Rajasthan fireplace tragedy: Bus travelling from Jaisalmer to Jodhpur catches fireplace; casualties reported | India Information
World

Rajasthan fireplace tragedy: Bus travelling from Jaisalmer to Jodhpur catches fireplace; casualties reported | India Information

Rajasthan fireplace tragedy: Bus travelling from Jaisalmer to Jodhpur catches fireplace (Image credit score: PTI) NEW DELHI: A personal bus…

3 Min Read
Spotify’s Premium Household plan simply bought an enormous improve for fogeys – and it may save their Spotify Wrapped too
World

Spotify’s Premium Household plan simply bought an enormous improve for fogeys – and it may save their Spotify Wrapped too

Spotify is increasing managed accounts for its Premium Household plan following a profitable pilot run Mum or dad guardian account…

3 Min Read
Archaeologists uncover Thirteenth-century sandal in bearded vulture nest in Spain
World

Archaeologists uncover Thirteenth-century sandal in bearded vulture nest in Spain

Archaeologists in Spain not too long ago printed findings revealing the exceptional contents of bearded vultures’ nests – together with…

4 Min Read
Flight Membership-owner Purple Engine scores with new funding package deal | Cash Information
World

Flight Membership-owner Purple Engine scores with new funding package deal | Cash Information

The leisure venue operator behind Flight Membership darts and Electrical Shuffleboard will this week announce an growth of its financing…

2 Min Read
The Wall Street Publication

About Us

The Wall Street Publication, a distinguished part of the Enspirers News Group, stands as a beacon of excellence in journalism. Committed to delivering unfiltered global news, we pride ourselves on our trusted coverage of Politics, Business, Technology, and more.

Company

  • About Us
  • Newsroom Policies & Standards
  • Diversity & Inclusion
  • Careers
  • Media & Community Relations
  • WP Creative Group
  • Accessibility Statement

Contact

  • Contact Us
  • Contact Customer Care
  • Advertise
  • Licensing & Syndication
  • Request a Correction
  • Contact the Newsroom
  • Send a News Tip
  • Report a Vulnerability

Term of Use

  • Digital Products Terms of Sale
  • Terms of Service
  • Privacy Policy
  • Cookie Settings
  • Submissions & Discussion Policy
  • RSS Terms of Service
  • Ad Choices

© 2024 The Wall Street Publication. All Rights Reserved.

Welcome Back!

Sign in to your account

Lost your password?