The lira fell over 8% versus the dollar on Monday, owing to investor concerns about Turkey’s monetary policy, after surging more than 50% last week as a result of billions of dollars in state-backed market interventions.

Last week, the lira was further bolstered by a government decision to compensate foreign exchange losses on some deposits.
It fell as low as 11.6 versus the US dollar on Monday before recovering to trade at 11.35 at 0800 GMT.

“The primary exchange rate resistance levels are between 11.45 and 12.0, with support levels at 10.57 and 10.25,” wrote QNB Invest in a daily bulletin.

The Turkish lira recovered to mid-November levels following last week’s rise.

It had dropped to an all-time low of 18.4 per dollar on Monday, following a months-long decline caused by worries of spiraling inflation caused by a series of interest rate cuts engineered by President Tayyip Erdogan.

At current levels the currency is still 35% weaker than at the end of last year.

Erdogan unveiled late last Monday a scheme under which the Treasury and central bank would reimburse losses on converted lira deposits against foreign currencies, sparking the lira’s biggest intraday rally.

Turks did not sell dollars in large quantities on Monday and Tuesday of last week, according to official data that suggested they had played little role in the gains. State interventions, meanwhile, cost the central bank more than $8 billion last week, according to traders’ calculations.

The central bank sold $1.35 billion in direct forex interventions on Dec. 2-3 to support the lira when it stood around 13.5 per dollar, according to data.

In an interview with broadcaster AHaber, Erdogan said Turks showed confidence in the local currency and deposits increased by 23.8 billion lira after the anti-dollarisation plan announcement.

However, according to statistics from the BDDK banking authority, Turkish private depositors had $163.7 billion of hard currency last Tuesday, practically unchanged from Monday and Friday, when the total was $163.8 billion.

Last week, the lira received a significant lift from what traders and analysts referred to as “backdoor dollar sales” by state institutions, which were backed up by the central bank.

Under Erdogan’s push, the central bank has cut policy rates by 500 basis points to 14 percent since September, despite rising inflation of more than 21%. Economists expect that price increases would top 30% next year, owing in part to the lira’s weakening.

On Monday morning, the benchmark BIST 100 stock index (.XU100) in Istanbul surged 2.6 percent.