Turkish President Erdogan Offers Plan To Pump Up The Lira: But Will It Work?

Turkish President Recep Tayyip Erdoğan has put forth a rescue plan designed to reanimate confidence in the lira, Turkey’s currency, amid an ongoing financial crisis.

What Happened: The Wall Street Journal reported Erdoğan addressed the nation in a televised speech on Monday evening, announcing the government will guarantee returns on lira deposits at a rate similar to those on foreign currency.

Erdoğan’s policy compensates lira depositors if the Turkish currency falls at a rate greater than the central bank’s benchmark rate, which is currently 14%. Erdoğan’s speech did not offer specifics on what this policy would cost or how the government would be able to fund this initiative if the economy deteriorates further.

“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,” Erdoğan said.

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What Happened Next: The announcement brought an immediate shot of energy into the deflating lira, resulting in its rise against the U.S. dollar by as much as 18% – which is something of a seismic shift, considering that most currencies in the foreign exchange markets move by less than a percentage point per day.

However, Turkey’s stock market continued to decline in Tuesday trading. For the third consecutive day, the Borsa Istanbul exchange saw its trading halted by circuit breakers to prevent greater losses.

Erdoğan’s speech also offered no evidence that he was willing to rethink his insistence on lower interest rates – he has pressured the central bank into cutting interest rates four times within the last four months despite high inflation, which fueled the lack of confidence in the lira’s viability. However, Erdoğan insisted his policy will strengthen the economy.

"Sooner or later, just as we lowered inflation all the way to 4% when I came to power, we will lower it again, we will make it fall again," Erdoğan said during an event on Saturday. "God willing, inflation will begin falling soon."

Photo: Gerd Altmann / Pixabay