The Turkish lira bounced back on Tuesday after losing around 60 percent of its value against the U.S. dollar and hitting historic lows earlier this month. The recovery of the currency began shortly after Turkey’s President Recep Tayyip Erdogan announced plans to protect deposits in the lira against future devaluation.
According to Erdogan, the Turkish government will make up for losses that lira deposit holders might experience in case the lira’s declines against hard currencies surpass banks’ interest rates.
“We are presenting a new financial alternative to citizens who want to alleviate their concerns stemming from the rise in exchange rates when they evaluate their savings,” Erdogan said in a speech on Monday afternoon.
At the beginning of the week, the lira traded at 18.36 to the U.S. dollar. Following Erdogan’s promise, the currency regained almost 50 percent of its value before experiencing several ups and downs. Currently, the exchange rate stands at 12.5 lire to the U.S. dollar.
The dramatic fall of the lira is a direct result of the low-interest rates that Erdogan proposed in attempts to fight inflation, which reached an annual rate of 21 percent in November. This is opposed to conventional wisdom and practices in other countries, which dictate that central banks increase interest rates if inflation is on the rise.
