Turkish lira weakens over 3% after historic surge last week

ISTANBUL, Dec 27 (Reuters) – The Turkish lira fell below 11.0 against the dollar on Monday, trimming its more than 50% gains last week supported by billions of dollars of state-backed market interventions and a government move to cover FX losses on certain deposits.

Weakening 3.2% from Friday’s close, the lira stood at 11.05 against the greenback at 0540 GMT. Last week’s rally brought the Turkish currency back to its mid-November levels.

Last Monday, the lira had plunged to an all-time low of 18.4 per dollar, after a months-long slide due to unorthodox interest rate cuts and fears of spiraling inflation.

President Tayyip Erdogan unveiled late on that day a scheme under which the Treasury and central bank would reimburse losses on converted lira deposits against foreign currencies, sparking the currency’s biggest intraday rally. read more

Turks did not sell dollars on Monday and Tuesday last week, according to official data that suggested they had played little role in the gains. State interventions, meanwhile, cost the central bank more than $8 billion this week, according to traders’ calculations.

In an interview with broadcaster AHaber, Erdogan said Turks showed confidence in the local currency and deposits increased by 23.8 billion lira after the anti-dollarisation plan announcement. read more

Data from the BDDK banking watchdog, however, showed that after heavy accumulation of dollars last week, Turkish individual depositors held $163.7 billion of hard currencies on Tuesday, virtually unchanged from Monday and Friday, when the total was $163.8 billion.

The lira got a big boost from what traders and economists called backdoor dollar sales by state banks, supported by the central bank.

Under pressure from Erdogan, the central bank has slashed its policy rates by 500 basis points to 14% since September, despite inflation at more than 21%. Price rises are set to exceed 30% next year in part due to the lira depreciation.

Reporting by Can Sezer;
Editing by Daren Butler and Vinay Dwivedi

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