2023-06-07 13:47:00
The Turkish lira, which fell more than 7% on Wednesday, hit new lows once morest the dollar and the euro, ten days following the re-election of President Recep Tayyip Erdogan.
The Turkish currency, massively supported by the Turkish Central Bank before the presidential and legislative elections in May, was trading shortly following 12:00 GMT around one dollar for 23.15 Turkish liras, or -7%.
The Turkish lira lost even more ground once morest the euro (-7.7%), following crossing the symbolic bar of 25 pounds for one euro. This is the strongest drop in the pound since the tumble in late 2021.
The currency was trading at less than 20 pounds to the dollar and less than 21.50 pounds to the euro before the second round of the presidential election on May 28.
Turkey’s central bank spent nearly $30 billion to prop up the national currency between Jan. 1 and the presidential election, pushing its foreign exchange reserves into negative territory for the first time since 2002.
Turkish President Recep Tayyip Erdogan, who has conducted a heterodox monetary policy in recent years, appointed a new economy minister on Saturday, Mehmet Simsek, whose mission will be to stem inflation (39.6% over one year in May) and put the Turkish economy back on track.
Upon taking office on Sunday, Mr Simsek, a proponent of a turn to orthodoxy, warned that it would take a return to “rational measures” to get the economy back on track.
‘Coma’
“I think we see the impact of Simsek pushing the Turkish central bank towards rational policy – which means a weaker and more competitive currency,” Timothy Ash, an emerging markets analyst at BlueBay, said on Wednesday. ‘we are witnessing a normalization’ of Turkish monetary policy.
For Ipek Ozkardeskaya, an analyst at Swissquote Bank, the Turkish lira is coming out of a ‘coma’ and ‘will go from one record to another once more’.
‘Nobody knows what the (Turkish) government really wants to do but we know that there is, following the elections, an effort to get out of an absurd monetary policy and return to more orthodox choices’, affirms- She.
“It was inevitable,” economist Güldem Atabay told AFP.
For her, this fall in the pound should last until the decision of the Central Bank on interest rates on June 22. ‘How will interest rates rise? If it’s 25 basis points (…), it won’t change anything. Will they go from 8.5% to 20%? We’ll see,’ adds Mr. Atabay.
Analysts believe that a sharp rise in the key rate, currently stable at 8.5% since the end of February, might help revive the Turkish economy.
President Erdogan has forced the Turkish Central Bank to steadily lower interest rates, contributing to soaring inflation.
Contrary to traditional economic theories, the Turkish head of state believes that high interest rates promote inflation.
Mr. Erdogan has repeatedly invoked the precepts of Islam, which prohibits usury and claims that high interest rates are promoted by a foreign ‘lobby’.
/ATS
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