Turkish markets continued to be gripped by volatility today despite the government’s emergency measures announced Monday to rescue Turkey’s ailing lira. The Borsa Istanbul, the country’s main stock exchange index, fell by 7.9%, triggering yet another circuit breaker. The lira swung between gains and losses after gaining as much as 20% against the dollar yesterday. Five-year credit default swaps, a bellwether of Turkey’s sovereign risk premium, continued to hover near the highest in more than a year, Reuters reported.
In what many market analysts saw as a last-ditch gamble, Turkey’s President Recep Tayyip Erdogan revealed a scheme whereby Turkey’s treasury will compensate holders of lira deposits for losses incurred should the decline in the national currency exceed interest yields. Critics point out that the move shifts the burden of Erdogan’s obsession with keeping interest rates as low as possible, which is seen as one of the main reasons the lira lost over half of its value this year, squarely onto tax payers. Moreover, it amounts to a backdoor hike in interest rates.