By Nevzat Devranoglu

ANKARA, Dec 28 (Reuters) – Turkey’s lira weakened as much as 2% on Tuesday, extending sharp losses seen a day earlier and eroding massive gains made last week, as worries about the country’s monetary policy weighed further on sentiment.

At 0800 GMT, the lira was 1.7% weaker at 11.9 to the dollar, having touched a low of 11.949 earlier.Despite staging a huge rebound last week, it has lost 37% of its value against the U.S. currency so far this year.

The lira surged more than 50% last week following billions of dollars worth of state-backed market interventions and a government move to cover FX losses on certain deposits, bringing the currency back to its mid-November levels.

President Tayyip Erdogan announced last week an incentive for savers to convert forex deposits into lira, under which the Treasury and Central Bank will reimburse losses incurred due to an erosion in lira value during the deposit period.

According to a document sent to banks on Monday it will support these forex-protected lira deposit accounts by not applying required reserve ratios on them.It will impose a higher commission on banks where the transfer from forex accounts to lira accounts does not exceed a certain level.

The lira hit an all-time low of 18.4 to the dollar before Erdogan’s announcement, after a months-long slide prompted by fears of spiralling inflation following a series of interest rate cuts that the president had sought.

Finance Minister Nureddin Nebati said late on Monday that Turkey’s state banks and institutions did not sell dollars on the night that Erdogan made his announcement.

According to traders’ calculations, the central bank’s net forex reserves excluding swaps fell some $8 billion last week, with most of the fall in the first two days of the week.They were down $17-18 billion as of last Friday since the start of the month, when the bank began its direct interventions.

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.

The central bank has slashed its policy rates by 500 basis points to 14% since September, forexbinaryoption.online despite inflation that has risen to more than 21%.Economists expect inflation to exceed 30% next year in part due to the lira depreciation. (Reporting by Nevzat Devranoglu Writing by Daren Butler Editing by Ece Toksabay and Gareth Jones)