(Bloomberg) -- The Turkish lira soared, rebounding from a record low reached earlier, after President Recep Tayyip Erdogan's government announced extraordinary measures to bolster the currency.
The dollar-lira currency pair plunged as much as 13% to 14.27 per dollar after spiking to 18.36 -- a record low -- earlier in the session. The lira became the biggest gainer on Monday among 31 major currencies tracked by Bloomberg.
President Recep Tayyip Erdogan's government announced measures including the introduction of a new program that will protect savings from fluctuations in the local currency. The government will make up for losses incurred by holders of lira deposits should the lira's declines against hard currencies exceed interest rates promised by banks, Erdogan said after chairing a cabinet meeting in Ankara.
The measures are intended to mitigate retail investors' demand for dollars and bring to an end three months of turmoil for the nation's currency.
“It could help the currency, but I think it comes down to credibility and whether depositors believe that's a policy that can actually be implemented,” said Brendan McKenna, a currency strategist at Wells Fargo in New York. “Right now, Turkish institutions don't have a ton of credibility so there may be challenges getting lira depositors on board.”
The lira has lost about half of its value against the U.S. dollar since September, with declines gaining pace after Erdogan last month unveiled an economic model that relies on lower borrowing costs and a cheaper currency.
S&P Global Ratings and Fitch Ratings lowered the country's outlook to negative, citing the lira's depreciation.
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