Turkey is developing a new deposit instrument to ease the pound

(Bloomberg) – The price stabilization method used to measure the income of Turkish lira-denominated deposits has changed less than two weeks after President Recep Tayyip Erdogan announced a new instrument as part of his efforts to strengthen the weakening currency.

Most read from Bloomberg

According to new instructions issued by the central bank, the so-called conversion rate will be determined using the exchange rates announced six times a day, not once a day. The exchange rate is used to measure the level of the lira against major currencies on the date of opening new accounts.

A similar change applies to deposits whose income depends on the price of gold, another tool that aims to encourage citizens to convert gold-based deposits into pounds. The maturity rate will be based on the purchase rate at 11 am local time.

On Friday, Erdogan called on citizens to convert foreign currencies into pounds, as well as those who keep gold in their homes to put their deposits in the banking system. In Istanbul, he said that “the reason is interest, and the result is inflation,” adding that those who think otherwise are acting on the “capitalist logic of the West.” He said Islamic teachings were a “weapon” against those who attacked Turkey at exchange rates.

On December 20, the president announced an emergency plan to prevent an unprecedented depreciation of the lira and protect investors from exchange rate fluctuations. One measure is to stop the current spot demand for foreign currency by guaranteeing that yields on lira-denominated deposits will not fall below bank interest rates.

How Erdogan’s plan to stop the depreciation of the lira is expected to work

After Erdogan introduced this mechanism, the pound recovered some of its losses in December. However, the currency remains weak at about 31% since the central bank began lowering interest rates on Sept. 23. This year, the dollar remains the worst emerging market currency with a decline of around 43%.

The story continues

Özlem Derici Şengül, co-founder of Spinn Consulting in Istanbul, said, “If the parts of the system are constantly changed, people can choose to expect a more profitable change.” “We are going through a serious lira liquidity crisis, and the only way to strengthen the lira base is through this mechanism. As long as it does not work fast, interest rates will not fall.

Treasury and Finance Minister Nureddin Nabati said in a television interview on December 29 that the amount of deposits made by citizens under the new system has reached 59.8 billion liras (about $ 4.5 billion).

At 14:35 on Friday, the pound fell 0.8% to 13.2598 for $ 1, the fifth day. The currency lost 44% of its value in 2021, the worst of any emerging market currency tracked by Bloomberg.

(Updates with Erdogan’s comments in the fourth part, prices in the last paragraph.)

Most read from Bloomberg Businessweek

© 2021 Bloomberg LP