(Bloomberg) — Turkey’s monetary authority has changed the price fixing method used to measure the returns of lira-protected deposits, less than two weeks after President Recep Tayyip Erdogan announced the new instrument in a bid to ease the currency’s decline.
The so-called conversion rate, used to measure the lira’s level against major currencies at the opening date of the new accounts, will be set by using the foreign exchange buying rates announced at six different times every day, according to the guidelines published by the central bank on Friday.
A similar change also applies to deposits whose returns are linked to the price of gold, another instrument that aims to encourage citizens to convert to liras from gold-based deposits. The end-of-maturity rate will be based on the buying rate at 11 a.m. local time.
“If parts of the system are continuously amended, people may opt to wait for a more advantageous change,” said Ozlem Derici Sengul, founding partner of Istanbul-based Spinn Consulting. “We’re going through a serious lira liquidity crunch and the only way to boost the lira base is this mechanism. Unless it works quickly, loan rates will not decline.”
Speaking in a TV interview on Dec. 29, Treasury & Finance Minister Nureddin Nebati said the amount citizens deposited under the new system reached 59.8 billion liras (about $4.5 billion).
Erdogan’s Push for Low Rates Backfires as Borrowing Costs Soar
President Erdogan unveiled the new design after a cabinet meeting on Dec. 20, saying that 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. The lira, which slumped to a record low of 18.3633 per dollar before his statement, strengthened as much as 33% to 12.2756 in a matter of hours.
The lira weakened 1% to 13.2793 per dollar at 11:12 a.m. on Friday, in its fifth consecutive day of declines. The currency depreciated 44% in 2021, the worst performer among emerging market currencies tracked by Bloomberg.
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