A resident counting Turkish lira banknote in Sultangazi district of Istanbul, after she bought bread at the Istanbul Municipality s cheap bread shop, on December 18, 2021. AFP
The lira hit an all-time low of 18.36 against the U.S. dollar Monday but rebounded to a high of 11.09 Tuesday morning. It was trading at 13.75 at 0820 GMT Tuesday.
The currency has been on a rollercoaster ride since the central bank began lowering interest rates in September and saw extreme volatility in the past weeks when the lira kept hitting record lows.
President Recep Tayyip Erdogan said Monday the government would cover losses incurred by lira deposit holders in cases where the lira's depreciation against foreign currencies exceeds the banks' interest rates.
"From now on, our citizens won't need to switch their deposits from Turkish lira to foreign currency, fearing that the exchange rate will be higher,'' Erdogan said Monday.
The extraordinary measure is aimed at boosting confidence among Turks about their currency after many flocked to foreign currencies and gold to hold on to their savings amid massive fluctuations and soaring consumer prices.
The weakened lira was driving prices higher, making imports, fuel and everyday goods more expensive. Many people in the country of more than 84 million are struggling to buy food and other basic needs.
But critics say the measure is unsustainable and could cause more inflation.
Turkey's president is avowedly against high interest rates and believes they cause inflation, a thought that stands in contrast to established economic principles. He bases his theory on Islam.
Under his assumed influence, the central bank has lowered interest rates by five percentage points since September to 14 percent despite official inflation running at 21 percent.
Erdogan also promised exporters Monday they would get foreign exchange forward rates from the central bank to mitigate volatility risks, and increased government contribution to private pensions from 25 percent to 30 percent.
On Monday's record low of 18.36, Turkey's currency had lost more than 60 percent of its value against the dollar this year. The head of the Turkish Banks Association, Alpaslan Cakar, told Turkish broadcaster Haberturk late Monday that 1 billion U.S. dollars had already been converted to liras after Erdogan's announcement.