As the reckoning for the human tragedy still continues, Turkey’s seismic tremors are gradually being transferred to its economy, and the central bank is resorting to new maneuvers to support its currency. Thus, for the hundredth time, he is imposing new directives on the country’s banks with the aim of making the purchase of hard currency extremely expensive and indirectly preventing the Turkish lira from retreating.

Sources close to the talks spoke to Bloomberg on condition of anonymity and said the Bank of Turkey has urged the country’s banks to charge a 40% interest rate on dollar futures contracts that close at a pre-agreed Turkish lira rate. This is a significant increase in the interest rate, which has stood at 30% so far. The central bank declined to comment, but as Bloomberg points out, Turkish authorities appear to be hoping to curb demand for dollars. This measure makes it particularly costly for stakeholders to try to hedge against fluctuations in the Turkish currency by buying these contracts through banks. Typically, such contracts lead to an increased demand for dollars, as a bank selling dollars to its client is in a hurry to buy hard currency in order to insure against a possible depreciation of the Turkish lira. Since last week’s devastating earthquake, Turkey has stepped up measures to contain demand for dollars and gold.

The new directive calls on banks to charge 40% per annum on dollar futures contracts that close at a pre-agreed Turkish lira rate.

However, support for the Turkish lira has become the cornerstone of the Bank of Turkey’s inflation control policy, which hovered around 80 percent for most of last year. After all, long before the devastating earthquake, since last month Bloomberg had signaled the intention of the Bank of Turkey to develop new rules that would require the country’s banks to hold collateral and other guarantees on dollar futures contracts in an effort to rein in demand at all times. for hard currency. However, according to the same sources who spoke to Bloomberg, the central bank has also asked the country’s banks not to sell dollars to retail investors unless they receive less than 19.05 Turkish liras for every dollar they lend.

The exchange rate of the Turkish currency was about 18.8548 pounds to one dollar yesterday. At the same time, the central bank set a high interest rate on the sale of gold in Turkish lira, while in the first days after the devastating earthquake, it “froze” the gold markets, detecting a surge in demand. Despite its extensive efforts to support the Turkish currency, the central bank is pursuing an unorthodox monetary policy promoted by the Turkish President, which is undoubtedly undermining the lira. He identifies the reason for the consistent reduction in interest rates, despite the rapid rise in inflation, in an attempt to stimulate growth with cheap loans. He capped interest rates at 9% when inflation in the neighboring country was over 85%. After all, even before the earthquake, he warned the markets that he was planning a new reduction in the cost of borrowing. In fact, according to Fatih Akcelik, an economist at JPMorgan Chase, at a meeting on February 23, the Bank of Turkey will again cut interest rates by another 100 basis points, from 9% to 8%. The mentioned economist estimates the damage from the earthquake at 25 billion dollars. Over the past year, and while the central bank persisted in this ultra-loose monetary policy, the Turkish lira lost 30% of its value against the dollar for another year, recording the worst performance of any emerging market currency since the Argentine peso. However, since the beginning of this year, it has depreciated by less than 1%.