NEWS CENTER – The Turkish lira slumped to yet another all-time low Tuesday, extending its slide after the re-election of incumbent fascist President Recep Tayyip Erdogan. The currency was last trading at 20.29 against the greenback at around 11 a.m. Tuesday morning local time, surpassing Monday’s lows. Earlier in the session, it had briefly weakened to 20.2 levels to the dollar. The lira has lost more than 7% of its value since the start of the year.
“If a big move weaker in the lira, and potential systemic economic crisis is to be avoided, Erdogan needs to move fast and appoint someone like Simsek as economic point person,” said BlueBay Asset Management’s Senior EM Sovereign Strategist Timothy Ash via e-mail. Mehmet Simsek was Turkey’s former finance minister who was known for his market friendly policies. He subsequently went on to become the country’s deputy prime minister from 2015 to 2018.
“The question is whether any such person will have enough freedom to make economic policy changes that are needed — like rate hikes,” Ash continued. 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.
A depreciation in the local currency increases the prices of imported goods for import-reliant Turkey, and a weak lira would mean that many of Turkey’s households and domestic businesses will be hit.
“Turkey has a production structure that relies on imports of intermediate goods,” said Professor of Economics at Koç University Selva Demiralp, who added that the depreciation would lead to a widening trade deficit and put further pressure on limited foreign currency reserves, which are already at historically low levels.
“Furthermore, the spillovers from the exchange rate to the inflation rate would imply another wave of inflationary pressures at home, where the inflation is already at 45%,” she said.
Turkey’s trade deficit in April widened 43.9% year-on-year to $8.85 billion. May’s figure is set to released at 3 p.m. local time.
