Turkey’s Lira Faces Pressure as Erdogan Secures Reelection

Following Recep Tayyip Erdogan's victory in the 2023 presidential election, the Turkish lira experienced a decline, reaching near-record lows. The currency was trading at 19.97 against the US dollar, with predictions indicating further depreciation. Wells Fargo's Brendan McKenna expressed a pessimistic outlook, expecting the lira to reach new lows against the dollar in the coming months and years. Over the past five years, the lira has already lost approximately 77% of its value against the dollar. McKenna believes Turkey's unorthodox monetary and economic policies will persist under Erdogan's continued rule.

Turkey's monetary policy prioritizes growth and export competitiveness over inflation control, an unconventional approach supported by Erdogan. Analysts, such as Timothy Ash from BlueBay Asset Management, argue that the current economic framework is unsustainable, given limited foreign exchange reserves and significantly negative real interest rates. The Istanbul stock exchange's opening is anticipated with caution, reflecting a gloomy economic and market outlook for Turkey.

Despite the challenges, one potential silver lining is the possibility of Turkey's central bank securing currency reserve swap lines with Middle Eastern and Chinese countries. McKenna suggests that leveraging these lines and expanding their scope could provide some support through central bank foreign exchange interventions. However, the overall sentiment remains pessimistic regarding Turkey's economic situation.

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