On Monday, the Turkish lira fell as much as 3% to a new low versus the US dollar as the central bank took moves to simplify policy and an official and bankers indicated the bank had stopped using its reserves to support the currency.

The lira fell as low as 26.05 per dollar, exceeding last week’s all-time low of 25.74. By 0945 GMT, it had reduced its losses to 25.84.

It is down 28% this year, owing mostly to President Tayyip Erdogan’s re-election in late May, who has subsequently reversed years of unconventional economic policies, including rate cuts amid rising inflation.

Two big steps were taken in recent days: the central bank under new Governor Hafize Gaye Erkan raised rates by 650 basis points to 15% on Thursday, a substantial tightening even though it fell short of market expectations.

Then on Sunday, the central bank began rolling back parts of the dozens of rules and regulations it had adopted since 2021 that left debt, credit and forex markets heavily state managed – and that were meant to encourage lira holdings.

With the use of central bank reserves to protect the lira’s value before the election, reserves fell to a historical low in early June, with net reserves at minus $5.7 billion. They recovered in the following two weeks.

The simplification steps at the weekend were meant to free up markets and ensure stability, the central bank said at the weekend, while a senior official said the bank had adjusted its foreign exchange policy.

“The central bank is not intervening in any way on the exchange rate level by selling foreign currency after its interest rate decision last week,” he said.

“The numbers are determined entirely by the free market. Hence, there is no use of foreign exchange reserves and a period of increasing reserves has started,” he added.

His comments echoed the view of bankers that the central bank had “completely stopped” using its reserves. “The value of the lira is no longer being defended by reserves,” said one trader.

“It seems the CBRT (Turkish central bank) seems to have completely abandoned the use of reserves in the forex market,” said a senior banker, adding that its foreign exchange position showed increases of $1-2 billion a day.