Turkish President Recep Tayyip Erdogan on Monday announced a series of measures to encourage lira-denominated savings, easing the pressure on the beleaguered Turkish currency.
Earlier in the day, the lira had tumbled to an all-time low of 18.36 against the dollar, after Erdogan over the weekend stood firm on his much-criticised policy to lower interest rates despite rising consumer prices. He also slammed business groups that called for him to change course.
In a televised speech following a Cabinet meeting, Erdogan said the government would offer a new financial vehicle that would “alleviate" the concerns of citizens who have been buying foreign currency, fearing that returns on their lira savings are being eroded. Turkish lira deposit holders would be compensated for possible losses from the decline of the local currency, he said, but did not provide details.
“From now on, our citizens won't need to switch their deposits from Turkish lira to foreign currency, fearing that the exchange rate will be higher," Erdogan said.
Erdogan also said the Turkish government will introduce a measure to help exporters while also increasing the government's contribution for private retirement plans.
The lira strengthened by 18% against the US currency following Erdogan's announcement. Still, the Turkish currency has depreciated by about 45% against the dollar this year.
Even though official figures show that annual inflation has accelerated to 21%, the Central Bank has cut a key interest rate by 5 percentage points — to 14% — since September. The bank is widely believed to be acting under pressure from Erdogan, who has proclaimed himself an enemy of interest rates and dismissed three bank governors over reported disagreements on borrowing costs.
Erdogan has long argued that high-interest rates cause inflation, contrary to conventional economic thinking. He has vowed to keep rates low and prioritize growth, exports and employment.
“With the drop of the interest rates, we will experience together in a few months how the inflation rate will begin to fall," Erdogan said.
The weakened lira is driving prices higher, making imports, fuel and everyday goods more expensive. Many people in the country of more than 83 million are struggling to buy food and other basic needs.
On Sunday, Erdogan vowed to continue to keep interest rates low, citing Islamic teachings against usury, saying: “Don’t expect anything else from me.”
Also Sunday, he pledged to bring inflation down to 4% as his government has done in the past. He dismissed speculation that his government may implement capital controls by expressing a commitment to free-market rules.
The Turkish leader later took a swipe at TUSIAD, a group of Turkey’s top businesses, which had urged the government to return to “the generally accepted rules of economics.”