The Turkish lira rallied on Tuesday in the wake of a string of measures announced by President Recep Tayyip Erdogan to support the economy and protect savings from the fluctuations of the national currency.
In the morning trading, the lira jumped 16 percent against the U.S. dollar, selling at 11 liras per dollar, before falling back sharply to stabilize at around 13.
The embattled Turkish currency plunged to a record low of 18.30 against the greenback on Monday, a value loss of nearly 60 percent since the start of the year.
Speaking on television after a cabinet meeting on Monday evening, Erdogan revealed new state measures including making up for the losses incurred by the holders of lira deposits should its declines against dollars or euros exceed interest rates promised by banks.
Defending his policy of low interest rates, Erdogan said the new measure will encourage citizens not to convert their liras to dollars or euros, prompting the lira to surge as much as 20 percent against the dollar.
Meanwhile, the state subsidy rate for the personal pension system will be raised from five percent to 30 percent in order to bolster its appeal, he added.
The Ministry of Treasury and Finance released a statement on Tuesday regarding the new exchange rate scheme to protect and boost confidence in lira-denominated savings.
The tool is valid for a lira deposit account with a maturity of three, six, nine and 12 months and the minimum interest rate will be the policy rate of the central bank, which is 14 percent.
For foreign exchange calculations, the central bank will publish the U.S. dollar exchange rate at 11 a.m. local time (0800 GMT) everyday, said the ministry.
The new measures came in the wake of rising prices and soaring exchange rates, as the government pursues its "new economic model" which stresses opposition to high interest rate.
The Turkish central bank has lowered its benchmark policy rate by 500 basis points since the end of the summer despite soaring inflation, pushing the lira to all-time lows.
Erdogan has been arguing that high interest rates would cause inflation, vowing to keep rates low and prioritize growth, exports and employment.
In Monday's speech, the Turkish president said the outcome of his new economic policy will be felt in a few months with a drop of the annual inflation rate that currently stands at 21.3 percent.
In recent months, Turkish households have seen their purchasing power tumble because of the price hikes in the import-reliant country.
People then turned to dollars or gold to protect their savings from rising inflation. According to reports, Turks hold some 280 billion dollars' worth of foreign currencies and gold in bank deposits or "under-the-mattress savings."
"We want these deposits to be invested in the economy," Erdogan remarked.
He dismissed speculation that his government may implement capital controls and expressed commitment to free-market rules.
Erdogan has offered strong growth and relative prosperity to Turks since he first came to power in 2002 as prime minister before being elected president in 2018.
He has refused to call snap elections requested by the opposition party, insisting that the next legislative and presidential elections should be held as scheduled in June 2023.
Experts gave mixed reactions toward Erdogan's financial plan, questioning if the nation's budget or foreign exchange reserves are strong enough to support the local currency.
"While aiming to solve the problems that may arise from the increase in foreign exchange in the short term, the fact that the exchange rate difference payment will be made by the Treasury should be evaluated in terms of budget balance," said Enver Erkan, chief economist at Istanbul's Tera Securities
"If there is not enough room in the budget, will banks and central bank reserves also be sources of payment? If banks are to assume the exchange rate risk, will they reflect their costs on their loans?" he remarked in a note to investors.