LONDON, May 28 (Reuters) ̵[ads1]1; Turkey’s lira fell to a new record low against the dollar as President Tayyip Erdogan secured victory in the country’s presidential election on Sunday, extending his increasingly authoritarian rule into a third decade.
The currency hovered above the 20.00 dollar threshold when trading began, not far from record lows hit at 20.06 on Friday.
The lira, subject to sharp swings before regular trading hours, has weakened more than 6% since the start of the year and lost more than 90% of its value over the past decade, with the economy in the grip of boom and bust. bouts of inflation and a currency crisis.
Since a crisis in 2021, the authorities have taken an increasingly hands-on role in the currency markets with daily movements that have become unnaturally small and have mostly registered a weakening while currency and gold reserves have declined.
“The current setup is just not sustainable,” said Tim Ash at BlueBay Asset Management. “With limited foreign exchange reserves and massively negative real interest rates, the pressure on the lira is heavy.”
Erdogan prevailed despite years of economic turmoil that critics blame on unorthodox economic policies that the opposition had vowed to reverse.
His surprisingly strong performance in the first round of elections two weeks ago had sparked a sell-off in Turkey’s international bonds and a rise in the cost of hedging exposure to the debt, amid fading hopes of a change in economic policy.
In his victory speech, Erdogan acknowledged that inflation was the most pressing problem, but said it would also fall, after the central bank’s key interest rate was cut to 8.5% from 19% two years ago.
Analysts were cautious about how much economic change Erdogan’s new government would usher in.
“Erdogan is unlikely to embrace a direct economic orthodox approach,” Wolfango Piccoli, co-president of advisory firm Teneo, said in an emailed statement.
“But some adjustments to the current heterodox approach could be adopted with a view to buying time ahead of the local elections in March 2024.”
Trading is expected to be thin on Monday, with many markets in Europe as well as the US closed for public holidays.
Reporting by Karin Strohecker, additional reporting by Ezgi Erkoyun, editing by Alexander Smith, Sharon Singleton and Diane Craft
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