A man holding a Turkish flag.
Uriel Sinai | Getty Images
The Turkish lira sank to a fresh record low Monday as incumbent Recep Tayyip Erdogan secured his victory in the 2023 presidential election, extending his rule into a third decade in power.
The currency briefly touched 20.0608 against the greenback at around 11 a.m. Monday morning local time, close to the recent low seen last week.
“We have a pretty pessimistic outlook on the Turkish Lira as a result of Erdogan retaining office after the election,” Wells Fargo’s Emerging Markets Economist and FX Strategist Brendan McKenna told CNBC’s “Squawk Box Asia.”
McKenna forecasts that the lira will reach a new record low of 23 against the dollar by end of the second quarter, and then 25 as early as next year. It has lost some 77% of its value against the dollar over the last five years. He expects Turkey’s unorthodox monetary and economic policy frameworks to remain in place going forward.
Turkey’s monetary policy places an emphasis on the pursuit of growth and export competition rather than taming inflation, and Erdogan endorses the unconventional view that raising interest rates increases inflation.
“The current set up is just not sustainable,” said BlueBay Asset Management’s Senior EM Sovereign Strategist Timothy Ash via email.
“With limited FX reserves and massively negative real interest rates the pressure on the lira is heavy,” Ash continued.
Istanbul’s main index, the Turkey ISE National 100 gained roughly 2% in its first hour of trade.
Credit default swaps, which measure the cost of insuring exposure to Turkish debt, also spiked.
Five-year CDS were trading at around 664.18 basis points, marking a 20% climb from the 550 basis point level prior to the run-offs, according to Refinitiv data.
These developments reflect market participants’ belief that orthodox policies, which were promised by the political opposition, were the only way to get the Turkish economy out of a potential crisis, said Selva Demiralp, a professor of economics at Koç University.
Meanwhile, MarketVector’s CEO Steven Schoenfeld wrote in an e-mail. “If the Lira continues to plunge and inflation surges again due to the policy of inappropriately-low interest rates, we could see a repeat of the ‘flight to safety’ allocation to Turkish equities by local investors which moved the market sharply higher in 2022.”
“It’s a very bleak economic and markets outlook for Turkey,” Wells Fargo’s McKenna added.
He noted that the “one silver lining” in the whole scenario could be the Turkish central bank’s ability to secure currency reserve swap lines with countries in the Middle East and China.
“If they can continue to draw on those lines and possibly extend and enhance those reserve currency lines, maybe there’s some support in the central bank FX intervention,” he added.
Donald Trump arrives at court in Manhattan for start of New York civil fraud trial
New Jersey Transit train hits car on tracks in Long Branch
Porsche Worked On Mission X Concept “Until The Very Last Second”
Who is Laphonza Butler, Feinstein Senate replacement from California?
Israel religious-secular divisions flare during holiday period
He was a world-class baseball star, but even he couldn’t handle it when life threw him this curve
Star Wars Eclipse is “Simmering,” Will Kill Any Character
Base Network Outstrips Solana’s TVL as Summer Lull Draws to a Close
30-year-old bought a ‘cheap, old’ abandoned house for $16,500—and completely transformed it: Take a look inside
2024 Nissan Sentra Priced From $21,725, Up $430 From Last Year
Predictive Policing Software Terrible at Predicting Crimes
A Complete Timeline of Taylor Swift’s ‘No Pressure’ Romance With Travis Kelce
Buy It For Parts
Buck Showalter fired as New York Mets manager
How to Re-Waterproof Your Old Rain Jacket
News15 hours ago
Wallace: I asked PM to give Ukraine £2.3 billion more for battle with Russia
Finance22 hours ago
Congress Passes Funding Bill to Avoid US Government Shutdown
News14 hours ago
One woman killed, several shot over the weekend in D.C.
Politics21 hours ago
Biden and Trump bring cold comfort to auto workers girding for long strike
Sport16 hours ago
England’s Lionesses squeeze back into school uniforms for BBC Children In Need
Tech18 hours ago
Mattel CEO Claims Its Barney Movie Won’t Be Weird
Lifestyle14 hours ago
‘Rogue One’ Director Says ‘There Is So Much Inaccuracy’ Surrounding Making of ‘Star Wars’ Prequel: ‘We All Worked Together Until the Entire Last Minute’
Sport15 hours ago
Celtics to acquire Jrue Holiday in latest blockbuster deal following Damian Lillard trade: reports