Turkish President Recep Tayyip Erdogan on Friday urged Turks to keep all of their savings in lire, insisting the country’s currency crisis was largely under control.
The Turkish lira has collapsed in recent months, prompting many people to transfer their savings to dollars and euros.
The local currency has since rebounded from an all-time low of 18.4, thanks to a new state program to protect deposits against depreciation.
What did Erdogan say?
“I want all of my citizens to keep their savings in our own money, to run all their business with our own money, and I recommend it,” Erdogan told business leaders during a speech in Istanbul.
“Let’s not forget this: until we take our own money as a benchmark, we are doomed to sink. The Turkish lira, our money, that is what we will use for it. Not with this or that foreign currency. The Turkish leader also called on the Turks to bring their gold savings into the banking system.
Turkish President Recep Tayyip Erdogan has been criticized for intervening in economic policy
Why is the Turkish lira in trouble?
Turkey’s currency crisis was triggered by Erdogan’s interference in economic policy.
He pressured the central bank to aggressively cut interest rates, amounting to 500 basis points since September.
The cuts sparked a massive sell off in the pound, which fell more than half against the US dollar at one point.
Retail investors saw their savings melt away, while the price of basic commodities like bread, eggs, butter and sunflower oil nearly doubled in a year.
Economists and former central bankers called Erdogan’s move unwise given that inflation is expected to hit 30% this month due to the depreciation of the pound.
Goldman Sachs expects it to reach 40% by mid-2022.
Countries typically raise interest rates to slow spending and lower prices – a mix of policies the pious Muslim Turkish leader rejects, citing Islamic usury laws.
On Friday, he reiterated his unorthodox view that interest rates were the cause of inflation.
“Interest rates are going down, interest rates are going up. My friends, please take this off our books. Interest rates make the rich richer and the poor poorer,” he said. -he declares.
What has been done to support the currency?
To alleviate the unrest, Erdogan last week unveiled a program in which the state protects local converted deposits from losses against hard currencies.
The move triggered a 50% rally in the pound with backing from the central bank.
But the local currency is still trading at levels around 13.3 per dollar, well above the 7.4 seen at the start of 2021.
Finance Minister Nureddin Nebati insisted this week that the Turks transfer their savings to lire.
But official data on Thursday showed local holdings of hard currency, which include businesses, reached a record high of $ 239 billion (€ 211 billion). Last week.
At the same time, the central bank’s net foreign currency holdings – its effective buffer against the financial crisis – plunged to an almost two-decade low, to $ 8.63 billion.
mm / dj (dpa, Reuters)