The Turkish lira has made significant gains after the country’s president announced on Tuesday new measures to safeguard deposits in the national currency against currency fluctuations.

The lira hit an all-time low of 18.36 against the US dollar on Monday but rebounded to a high of 11.09 on Tuesday morning. It was trading at 13.75 at 08:20 GMT.

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 hit several record lows.

In a speech late on Monday, President Recep Tayyip Erdogan said 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,” he said.

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 enormous fluctuations and soaring consumer prices.

The weakened lira was driving prices higher, making imports, fuel and everyday goods more expensive.

Turkey’s president is avowedly against high interest rates and believes they cause inflation, a thought that stands in contrast to established economic principles.

The central bank has lowered interest rates by 5 percentage points since September to 14 percent, despite official inflation running at 21 percent.

Erdogan also promised exporters on 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 on Monday that $1bn had already been converted to lire after Erdogan’s announcement.

‘Dangerous consequences’
Critics say Erdogan’s plans are unsustainable and could cause more inflation.

Some economists have said the new measures are effectively veiled rate hikes that may not ultimately stem the selling pressure while straining the back-stopping Treasury.

“It can have dangerous consequences,” said Refet Gurkaynak, head of Bilkent University’s economics department, in Ankara.

Jeffrey Halley, senior market analyst, Asia Pacific, OANDA, said it remained unclear how the government would carry out the new measures.

“The Turkish lira … had the mother of all rallies overnight, falling 11 percent intraday, but finishing the overnight session more than 20 percent higher after President Erdogan announced new policy measures to protect the lira savings from currency depreciation,” Halley said.

“A look through the new measures left me scratching my head about how they would ever be enacted and executed, especially in a short time.”