ISTANBUL: Turkey’s central bank says it will prioritise measures aimed at encouraging savers to use lira deposits in 2022 even as the currency resumes a slide that’s seen it lose nearly 40% of its value this year.

       Steps will be taken to make the lira more attractive than foreign currency, the bank said in a paper that sets out monetary and foreign exchange policy for the coming year.

       Policy makers will also stick to a 5% medium-term inflation goal – even as the rate of consumer price increases exceeds 20% – while jettisoning the tighter monetary policy pledge made by former governor Naci Agbal a year ago.

       December has been one of most tumultuous months for the lira in decades.

       The currency slumped as much as 27% from the Nov 30 close to the record low on Dec 20 as the central bank pushed ahead with interest-rate cuts at the behest of president Recep Tayyip Erdogan.

       Then it recovered as much as 73% from the record low last week when authorities announced a series of controversial measures to put it on a more stable footing.

       Analysts have dismissed the central bank’s latest guidance, which goes against mainstream economic approaches, as unworkable and said unorthodox measures to boost lira demand couldn’t offer more than temporary relief.

       “Turkey’s attempt to lower inflation from more than 20% to 5% while cutting monetary policy rates aggressively is doomed to fail,” Per Hammarlund, chief emerging-markets strategist at Skandinaviska Enskilda Banken AB said. “The Turkish authorities cannot have the cake and eat it, too.”

       The central bank had already signalled its commitment to encouraging lira deposits.

       It said this week it would support the conversion of foreign exchange and gold savings accounts to lira accounts and pay higher returns to commercial lenders that switch some of their foreign currency deposits at the central bank to lira.

       Earlier this month, it unveiled a new mechanism that would see the government compensate holders of lira deposits if the currency’s declines exceed bank interest rates.

       Although Erdogan’s popularity is suffering from the high inflation that’s accompanied the lira’s decline, he’s stuck to his position that interest rates are holding back the economy, and promised to stabilise the currency through the latest series of measures.

       Yet, his plans don’t address the root causes of the crisis, or the government’s credibility gap, and there are signs his broader approach is backfiring.

       The lira slipped 5% against the dollar on Wednesday, extending this week’s losses to 15%, with traders saying that people aren’t rushing to Erdogan’s new products.

       Investors think the market is pricing in future inflation and don’t see the lira recovering anytime soon despite the recent measures, given the government’s insistence on cheap borrowing.

       Surveys ahead of the Jan 3 inflation data release forecast inflation will accelerate to around 27%.

       The yield on 10-year government bonds has climbed more than seven percentage points since the central bank began slashing rates in September, to a record high of 24.9% on Wednesday.

       Erdogan has said his policies aim to boost production and exports, reducing the influence of international markets on Turkish monetary policy. He sacked the former central bank governor Agbal after just four months last March, two days after he hiked borrowing costs by two percentage points.

       His successor, Sahap Kavcioglu, has duly cut the benchmark rate by 500 basis points since September, despite widespread criticism from investors.

       The central bank’s setting of an ambitious inflation target has become an annual rite in Turkey, even though it hasn’t been met for years, and appears more unreachable than usual. — Bloomberg