The decline follows a rollercoaster ride of volatility that saw the currency surge more than 50 percent last week after the country’s government announced a number of measures to safeguard deposits held in lira against currency fluctuations.
As of 14:43 in Istanbul (6:43 ET) on Monday, the currency was trading at 11.31 against the U.S. dollar, having reached an all-time low of 18.36 against the dollar last week before rebounding to a high of 11.09 following the government’s announcement.
Turkey’s currency has weakened significantly in recent weeks while Erdogan continues to put pressure on the central bank to slash interest rates, a move he firmly believes will boost exports, investment, and jobs within the country. However, the country has instead witnessed soaring inflation levels, increasing the cost of everything from food to basic medicine.
In a speech late on Dec. 20, Erdogan—who has repeatedly come under fire over his unorthodox approach of lowering interest rates despite rising inflation—introduced a series of measures aimed at protecting Turks from the high cost of living while encouraging them to hold savings in lira as opposed to foreign currency.
The country’s government will pay the difference between the value of savings in lira and equivalent dollar deposits, should its decline against the currency exceed interest rates promised by banks.
“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 Monday.
“With the interest rate cuts, we will all see how inflation will start falling within months,” he said. “This country will no longer be a heaven for those adding to their money with high interest rates, it will not be an import haven.”
The state subsidy rate on the personal pension system will also be raised from 5 percent to 30 percent in order to boost its appeal, and the stoppage (deductions) on companies’ dividend payments will also be lowered to 10 percent, Erdogan said.
He also noted that export companies who find it “difficult to present prices due to fluctuations in foreign exchange rates, they will be given a future exchange rate through the Central Bank.”
Despite this, critics fear just how sustainable the new policy will be and what impact it could have on inflation levels that are already ravaging the economy.
Meanwhile, Turkish residents are reportedly continuing to hold onto foreign currency. Foreign currencies held by households in Turkish banks from Dec. 3 to Dec.10 rose by roughly $673.16 million, according to the latest data released by the Turkish central bank.
Data from the BDDK banking watchdog also showed that after a wave in the accumulation of dollars the previous week, Turkish individual depositors held $163.7 billion in hard currencies last Tuesday. That figure is virtually unchanged from Monday and Friday when the total was $163.8 billion.
Erdogan told reporters on Christmas Eve that following last week’s announcement, “Turkish lira deposits are increasing since people are putting their Turkish lira reserves to bank accounts with measures to secure the Turkish lira’s value” adding that lira deposits have risen by 23.8 billion.
The lira has lost roughly half its value to the dollar this year.