News ID: 115574
Publish Date : 29 May 2023 - 22:56

ISTANBUL (Al Jazeera) – The Turkish lira has plunged to record lows after the re-election of President Recep Tayyip Erdogan, a sign that currency markets are not confident in the country’s economic future after the longtime leader’s victory.
The Turkish currency weakened to 20.01 to the United States dollar on Monday after the high-stakes run-off a day earlier.
But Turkish stocks, on the other hand, rose as Erdogan entered a third decade in power with the benchmark BIST-100 index up 3.5 percent and the banking index rising more than 1 percent.
The lira fell to a record low as the country battles a cost of living crisis and depleted foreign reserves.
On the campaign trail, Erdogan pledged to slash inflation to single digits and boost economic growth, a message he reiterated in his victory speech late on Sunday. But some analysts said his economic policies are unorthodox and predicted a negative economic outlook.
Interest rate cuts sought by Erdogan sparked a devaluation of the Turkish lira in late 2021 and sent inflation to a 24-year peak of 85.5 percent last year. The president had argued that higher interest rates cause inflation while central banks around the world were raising rates to reduce price rises.
Turkey’s struggling economy, also reeling after the country’s devastating double earthquakes in February, was a major thorn in Erdogan’s prospect for re-election.
The leader has defended his economic policies, reassuring Turks that investment, production, exports and an eventual current account surplus will drive up Turkey’s gross domestic product.
Some financial markets analysts link the currency’s decline to Ankara’s continuation of low-interest rates, restrictive foreign currency regulations, and high inflation.
“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.”
The markets economist and FX strategist predicts that the lira will reach a new record low of 23 against the dollar by the end of the second quarter, and then 25 as early as next year.
McKenna forecasts Turkey’s lira to continue to lose value as long as Erdogan’s government continues to implement the same monetary and economic policies of past years.
Over the last five years, the Turkish lira has lost some 77 percent of its value against the dollar as Ankara pursued economic growth and export competition rather than controlling inflation.
At the same time, Erdogan opposes any increase in interest rates, pushing the view that raising interest rates increases inflation.

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