By Daren Butler

ISTANBUL (Reuters – The lira dropped almost 8% against US Dollar Monday due to persistent investor concern about Turkey’s monetary strategy. It had surged over 50% last week, after billions in state-backed market interventions.

Last week, the government moved to protect FX losses from certain deposits and supported the lira.

The greenback fell to 11.6 on Monday, but it recovered to trade at 11.35 GMT by 8:00 GMT.

QNB Invest stated in a daily bulletin that the main resistance to exchange rates is located at 11.45 and 12.0 with support levels of 10,57 and 10.25.

The rally last week brought the Turkish currency to its mid-November level.

It plunged to 18.4 dollars last Monday after months of slide caused by fears of inflation spiraling due to a series of interest rate reductions engineered by President Tayyip Erdoan.

The currency’s current level is 35% lower than it was at the beginning of the year.

Late Monday, Erdogan revealed a plan under which Treasury and Central Bank would refund losses from converted Lira deposits to foreign currencies. This led to the largest intraday rally in lira history.

Official data suggests Turks had little to no role in the gain. Turks didn’t sell large numbers of dollars on Tuesday and Monday last week. According to trader calculations, state interventions cost the central bank over $8 billion last week.

According to data, the central bank made $1.35 trillion in forex intervention directs on December 2-3 to help support the lira at 13.5 dollars per dollar.

Erdogan stated in an interview that Turks had confidence in local currencies and that deposits have increased by 23.8 Billion Liras after the Anti-Dollarization Plan announcement.

Data from BDDK’s banking watchdog revealed that Turkish individual depositors had $163.7 billion worth of hard currency last Tuesday after accumulating dollars over the week. This is virtually the same as Monday and Friday when it was $163.8 trillion.

Economists and traders called it backdoor dollar sales, which were supported by the central banking. This gave the lira an important boost.

Erdogan’s pressure, Erdogan wanted the central bank reduce its policy rate by 500 basis points. It is now at 14%. However, inflation has increased to over 21%. According to economists, price rises will exceed 30% next year because of the lira’s depreciation.

Tuesday morning saw a 2.6% increase in the Istanbul Stock Exchange 100 Index.