The Turkish lira fell by 3.7% against the dollar after rising by more than 50% last week, which was due to large-scale interventions by the Central Bank and the introduction of a new deposit instrument.
According to traders' calculations, government interventions last week cost the central bank more than $8 billion. Meanwhile, the government announced that, as part of the new deposit instrument, it will compensate for losses incurred by holders of deposits in the lira if the fall in the exchange rate of the national currency against the dollar exceeds bank rates. However, economists are afraid of the possible impact of such a decision on the budget and inflation.
The Turkish president said on Friday that the Central Bank will not rush the process of stabilizing the yen, and added that the lira will gradually return to previous levels. According to economists at HSBC Holdings Plc, the government will seek to keep the exchange rate below 9 lira per dollar, but if the Central Bank's interventions are reduced, the lira may resume its decline against the US dollar.
Despite the recent rally of the lira, at current levels it is still 35% weaker against the US dollar than at the end of last year. The main pressure on the currency came from the policy of the Turkish President, who forced the Central Bank to cut the interest rate by 5% since September, despite high inflation in the country (more than 21%). According to economists' forecasts, consumer inflation will exceed 30% in 2022, partly due to the decline of the lira.