Turkish Lira Soared 10% After Erdogan Rescue Plan

The dollar-lira currency pair plunged as much as 13% to 14.27 per dollar after spiking to 18.36 -- a record low -- earlier in the session. The lira became the biggest gainer on Monday among 31 major currencies tracked by Bloomberg.

The lira has lost about half of its value against the U.S. dollar since September, with declines gaining pace after Erdogan last month unveiled an economic model that relies on lower borrowing costs and a cheaper currency.

S&P Global Ratings and Fitch Ratings lowered the country’s outlook to negative, citing the lira’s depreciation.

President Recep Tayyip Erdogan’s government announced measures including the introduction of a new program that will protect savings from fluctuations in the local currency. The government will make up for losses incurred by holders of lira deposits should the lira’s declines against hard currencies exceed interest rates promised by banks, Erdogan said after chairing a cabinet meeting in Ankara.

Below is a summary of other steps announced by Erdogan on Monday:

  1. Authorities will offer non-deliverable forwards to help exporters mitigate foreign-exchange risks emanating from the elevated levels of volatility.
  2. “Turkey has neither the intention nor the need to take the slightest step back from the free market economy and the foreign-exchange regime,” Erdogan said.
  3. Withholding tax for investments in lira notes issued by the government will be reduced to 0% from 10% currently.
  4. Government will match 30% of all contributions made by private-sector workers to the optional pension system, up from the current level of 25%.

In the eyes of the president, Turkey can free itself from a reliance on foreign capital flows by abandoning old policies that prioritized higher interest rates and strong inflows. At the heart of his ideas is a belief that lower interest rates will also curb consumer price growth -- the exact opposite of the consensus view among the world’s central bankers.​