Turkey: Erdogan announces measures to shield the lira


Turkey: Erdogan announces measures to shield the lira

Aim: to curb the Turkish people's gold and dollar rush

Turkish Lira in the grip of strong swings, after the announcement of the president of Turkey Recep Ta Erdogan

The roundup of cuts came despite runaway inflation, which jumped over 21% in November.

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But in the country where there is now talk of monetary madness, and in defiance of all the appeals from the world of business and world-renowned economists, Erdogan continued to order the country's central bank to inject additional liquidity into the financial system.

The result: the devaluation of the currency, which has burned 57% of its value since the beginning of the year, capitulated by almost 30% in November alone to new record lows.

The latest records were tested in yesterday's session, when the Turkish lira plunged to the new lowest value ever, to 18.36 against the US dollar, after Erdogan even went so far as to invoke Islam in justifying his monetary policy diktats (those who dared to oppose it within the central bank, in fact, were defenestrated without too much trouble, governors included).

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So, in a speech delivered on Sunday, December 19:

"What's the point? We're lowering interest rates. Do not expect anything different from me". "As a Muslim, I will continue to do what is required by 'nas', A Turkish word that refers to the teachings of Islam, equivalent to expressions such as' divine decree','written law'.

In short, in Turkey, according to Erdogan's words, monetary policy has become a faith, a religion, a monetary Creed (comment: what is not done to be populist).

Bu scaten unleashed on Turkish lira after Erdogan announcement, record boom since 1983
Yesterday's announcement of measures to shield the lira triggered a rally in the currency, which rebounded by 25% from record lows.

The lira's jump was the strongest in 38 years since 1983.

However, pay attention to the three-month volatility index of the dollar-lira ratio which, according to Bloomberg reports, has risen by 53%, exceeding the levels of the 2018 Currency Crisis.

Erdogan's announcements also had an immediate effect on government bonds, with the rates of Turkey's ten-year sovereign debt plummeting by 90 basis points, to a record since April.

At 12.30 pm in Istanbul, the lira reduced record gains to rise around 12.9643 per US dollar.

But look at the trend of credit default SW...

Obvious signs of tension have come in recent weeks not only from the Turkish lira but also from the cds market, the credit default SAP: according to IHS Markit data collected by Refinitiv - mentioned by the Financial Times - five-year cds rose to 612 basis points, more than doubling from 300 basis points at the beginning of the year.

As a result of the measures announced by Erdogan, cds have fallen in the last hours by 35 basis points to 589, but continue to fluctuate at the highest in more than a year.

Strong tension also on the Istanbul Stock Exchange, whose trading was suspended yesterday for the second consecutive session, after the main benchmark index, the Bist 100, fell as much as -5%.

With the measures announced, Erdogan hopes to convince savers to hold lira, instead of converting them, as is happening, into dollars, gold and even crypto assets.

Turkish people on the verge of exhaustion, has run to dollars, gold and even cr cr
In this regard, a testimony came with an article published by The Guardian, which reported the interview with Seda , a Turkish citizen who, for obvious reasons, preferred to be quoted by name alone.

Seda was interviewed while inside a jewelry store, ready to sell her jewelry.

In addition to Seda, however, there are many Turks who instead buy gold, to protect themselves from the ongoing currency crisis in the country.

For her part, Seda was interviewed in an Istanbul jewelry store located in Taksim Square, as she entered into negotiations with the store owner to understand how much she could raise by selling her jewelry.

The shopkeeper immediately called a trader to update himself on gold quotes.

"I used to monitor the price of gold once a week. Now I check it 50 times a day or so".

So Seda to The Guardian, talking about his desire to buy a house:

"My husband and I are undecided about what to do, because the prices of everything are fluctuating. We do not ask for a loan because we do not know if we could repay it, since we do not know what will happen to the lira. I don't know what to do". Seda's husband is more determined on what to do: "my husband is betting on CRTO He does not want to know about the Turkish lira, he believes that the future is cryptocurrencies".

Then there are those, always reports The Guardian, who prefer instead to buy gold - a traditional hedge tool to protect against inflation-or dollars.

In particular trader Hakki Li Li:

"I think they are more accessible. "$50 is better than gold. Lica added that " about 70% of customers are Turks, who buy (dollars) in a panic. Many have debts that they want to pay off".

Already the Economist Murat Kubila avvertito in his recent article entitled 'Turke's self-made currenc Cris crisis, had warned that in reality it is "domestic investors, that is the Turks themselves, the key element that triggered the current currency crisis, with their desire to sell the lira, triggered by an interest rate (set by the central bank 'puppet' CBRT) lower than the inflation rate.

Turkey: the main measures of Erdogan's plan to shield the lira

With the plan announced yesterday, Erdogan aims precisely to stop the gold and dollar rush of his people:

"From now on - he said in his speech yesterday-none of our citizens will need to convert their deposits of lire into foreign currency, fearing that fluctuations in the exchange rate could erase the gains that come from interest payments," he said.

In short, hold lira, not dollars, was the message of the president: someone listened to him, since, according to rumors, savings worth $1-$1.5 billion were converted into lira on Monday night.

The government announced the following measures to armor the Turkish lira:

the authorities will offer Non-Deliverable forard The non-deliverable forard Erdogan made it clear in his speech that exporting companies will receive an exchange rate futures through the central bank.
Another announced measure is the 10% reduction in withholding tax on dividend payments to companies.
"In order to improve the attractiveness of our private pension system, we will increase state contributions from 5% to 30%," Erdogan said.

Analysts remain skeptical about Erdogan's ability to improve the situation:

"If the programme succeeds in restoring some of retail savers' confidence in the lira, perhaps the worst will be over for now for the currency, "Todd Schubert, head of Bank of Singapore's fixed income research division, told Bloomberg." however, at the end of the trade show, until interest rates provide a credible anchor against inflation, the lira will tend to be volatile and will be subject to bearish pressure.

Some economists polled by Reuters and Bloomberg went further, saying that the measures announced by Erdogan are practically a disguised rate hike.

Refet Gurka Gur Nak, head of the economics department at Bilkent University in Ankara, told Reuters news agency that the government's plan could have "dangerous consequences".

He also interviewed by Reuters Jeffrey Halley, senior market analyst at the division for Asia Pacific of OANDA said that, with the massive rally of the last few hours, the lira has "lived the mother of all rallies". However, Halle aggiunto added that it remains to be clarified how the government will implement the new measures.

Michael Zippo

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