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ANKARA, Dec.28 (Reuters) – The Turkish lira weakened by as much as 2% on Tuesday, extending the steep losses the day before and eroding the massive gains made last week, as concerns about the country’s monetary policy weighed down on feeling.
Around 11:25 GMT, the pound reduced its losses to trade at 11.8 against the dollar, after a morning low of 11.949. Despite the rebound last week, it has lost 37% of its value against the US dollar so far this year.
The pound jumped more than 50% last week after billions of dollars in state-backed market interventions and a government move to cover exchange losses on some deposits, pushing the currency back to its levels of mid-November.
President Tayyip Erdogan last week announced an incentive for savers to convert foreign currency deposits into lire, under which the Treasury and the Central Bank will reimburse losses suffered due to an erosion in the value of the pound in the during the deposit period. Read more
According to a central bank document sent to banks on Monday, it will back these forex-protected sterling deposit accounts by not enforcing reserve requirement ratios. It will impose a higher commission on banks when the transfer from forex accounts to lire accounts does not exceed a certain level.
The lira hit an all-time low of 18.4 per dollar ahead of Erdogan’s announcement, after falling for several months on fears of soaring inflation following a series of rate cuts. interest that the president had requested.
Dollar-denominated sovereign bonds came under pressure on Tuesday with multiple issues breaking streaks of multi-day gains in restricted trade and the 2030 bond slipping over 1 cent to the dollar, Tradeweb data showed .
EXPECTED INCREASE IN INFLATION
Turkish annual inflation is expected to reach 30.6% in December, according to a Reuters poll, topping 30% for the first time since May 2003, six months after Erdogan’s AK party came to power. Read more
In December alone, prices are expected to have risen 9%, according to the poll, with the impact of the weak pound also expected to be felt in the coming month.
“Inflation could follow an upward trend with the delayed impact of exchange rates after January,” said Gedik Yatirim economist Serkan Gonencler. Data for December will be released on January 3.
According to traders’ calculations, the central bank’s net foreign exchange reserves, excluding swaps, fell by some $ 8 billion last week, with most of the decline occurring in the first two days of the week. They were down from $ 17 billion to $ 18 billion last Friday since the start of the month, when the bank began direct interventions.
However, Finance Minister Nureddin Nebati denied Monday night that there were any sales of dollars by institutions the night Erdogan made his announcement.
“There was no intervention that night, neither from public banks nor from anyone,” Nebati said in an interview. “Individuals ran that night to sell their dollars, thanks to the trust created by our President Tayyip Erdogan.”
The Turks did not sell dollars in large quantities on Monday and Tuesday of last week, according to official data suggesting they played little role in the gains.
The central bank has cut its key rates by 500 basis points to 14% since September, despite inflation reaching over 21% in November.
Istanbul’s main stock index (.XU100) fell 0.7%.
Additional reporting by Karin Strohecker and Ezgi Erkoyun Writing by Daren Butler Editing by Ece Toksabay, Gareth Jones and Barbara Lewis
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