The Turkish lira is declining as Erdogan guarantees victory

LONDON (Reuters) – The Turkish lira slid towards a new record low against the dollar as President Recep Tayyip Erdogan secured victory in Sunday’s presidential election, extending his increasingly authoritarian rule into a third decade.

The currency hovered above 20.00 to the dollar threshold as trading began, not far from the record low of 20.06 hit on Friday.

The lira, which is subject to sharp fluctuations before normal trading hours, has fallen more than 6% since the start of the year and has lost more than 90% of its value over the past decade as the economy grips boom-bust cycles. bouts of inflation and currency crisis.

Since the 2021 crisis, the authorities have played an increasingly hands-on role in foreign exchange markets as daily moves have become abnormally small and mostly registered weakness while foreign exchange and gold reserves dwindled.

“The current setup is not sustainable,” said Tim Ash of BlueBay Asset Management. “With limited foreign exchange reserves and massive negative real interest rates, the pressure on the lira is heavy.”

Erdogan prevailed despite years of economic turmoil, which critics blame on unorthodox economic policies that the opposition vowed to reverse.

His surprisingly strong showing in the first round of elections two weeks ago triggered a sell-off in Turkey’s international bonds and a surge in costs to secure exposure to its debt amid fading hopes of a change in economic policy.

In his victory speech, Erdogan acknowledged that inflation was the most pressing issue, but said it would also come down, after the central bank’s policy slashed to 8.5% from 19% two years ago.

Analysts have been cautious about how much economic change Erdogan’s new government will announce.

“Erdogan is unlikely to adopt a hawkish economic approach,” Wolfango Piccoli, co-chairman of consulting firm Teneo, said in emailed comments.

“However, some modifications could be adopted to the current unconventional approach with the aim of buying time before the local elections in March 2024.”

Trading is expected to be subdued on Monday, with many markets in Europe, as well as the United States, closed for holidays.

(Reporting by Karin Stroeker Additional reporting by Ezgi Erkoyun Editing by Alexander Smith, Sharon Singleton and Diane Kraft

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