Ankara, dec. 21 (Reuters) – The Turkish lira returned from a historic fall in volatile trade on Tuesday.

Erdogan introduced a series of measures late on Monday that he would ease the burden of the weak currency on the Turks and encourage them to keep the lira over the dollar. read more

Under Erdogan’s plan, his government promised to guarantee deposits in the lira, raising the currency by 25% at one point on Monday, sending its largest intra-day rally.

The Turkish currency, which lost 44% of its value against the greenback this year, strengthened to a daily high of 11.0935 against the dollar on Tuesday and then weakened to 14.3885 before swinging to 12.6 at 1018 GMT.

The government has promised to pay the difference between the lira savings and the equivalent dollar deposits.

According to central bank data, more than half of locals’ savings are in foreign currencies and gold, which lost confidence in the lira after years of depreciation.

The lira has fallen to a record low this year on fears of an inflationary cycle due to Erdogan’s devaluation. At its lowest level, it is down 60% year-on-year.

Alpaslan Cakar, president of the Turkish Banks Association (TBB), said the treasury would meet. Costs of operations, Which can prove to be an expensive and inflationary effort.

About $ 1 billion was sold in the markets after the announcement, Cakar said. The three bankers’ calculations turned about $ 1-1.5 billion in savings into lira.

An informed source in the case said the measures were decided after the exchange rate hit a “critical” level, adding that the government would carefully manage the coming period.

“The dollar and the euro have really risen to the point of creating a bubble. We need to intervene. This situation is not stable,” the person demanded anonymity.

Details of the new economic plan will be announced at 1100 GMT, Finance Minister Nurettin Nebati said.

According to IHS Markit, Turkey’s five-year credit default swaps, the cost of insuring against sovereign defaults, has risen to 613 bps, the highest since May 2020.

Meanwhile, the one-month volatility in the Turkish lira rose to 63%, the highest on record.

Presidential Adviser Semil Erdem told Reuters that the move had eliminated the dollar demand from individual investors, which was a “very important precedent change” for Turkey’s economy.

A senior banker said that before implementing the deposit guarantee measure, the infrastructure and regulations need to be introduced, adding that it is not clear how the extra money given by the government to the depositor will be taxed.

‘Mother of all rallies’

Despite the government calling Monday’s lira resurgence, economists say Erdogan’s economic plan, based on low interest rates, is irresponsible and expects inflation of more than 21% to 30% next year.

Turkey’s EPDK energy regulator said it had suspended planned price hikes for the time being after the lira rally. Turkey’s key BIST 100 stock index fell 6.12% on Tuesday, triggering index-level circuit breakers and suspending trading.

Under Erdogan’s pressure, the central bank has cut rates by 500 basis points since September. The president has promised to continue his low-fee policy, including on Monday.

Some economists have argued that the new measures are effectively covert rate hikes, which will not ultimately deter selling pressure on the lira, while at the same time putting pressure on the treasury.

Refed Gurgenak, head of the economics department at Billkent University in Ankara, said: “This could have dire consequences.

Jeffrey Haley, senior market analyst at Asia Pacific, OANDA, said it was unclear how the government would take new action “especially in the short term.”

Additional report by Orhan Coskun in Ankara, Ebru Tuncay in Istanbul and Davide Barbuscia in Dubai; Editing: Jonathan Spicer, Sam Holmes, Ana Nicolaci da Costa and Alexander Smith

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