The value of the Turkish currency fell another 1% this week, after dropping 11% last week. The Turkish currency has suffered losses since early March, registering the longest streak of losses since 1999.
The declines accelerated following the re-election of President Recep Tayyip Erdogan on May 28.
In the 18 months leading up to the election, Turkey’s central bank used nearly $200 billion in reserves to try to prop up the currency, but the Turkish lira remained one of the worst performers in emerging markets.
Meanwhile, Turkish President Recep Tayyip Erdogan has appointed two former Wall Street bankers – Mehmet Simsek and Hafiz Gay Erkan – to handle the country’s finances, signaling a potential shift from massive state intervention in fiscal and monetary policy at a favor let the market determine the fair value for the currency.
Earlier, Erdogan said he was determined to bring inflation down to single digits under the “low inflation, low interest rate” policy.
Erdogan pursued unconventional policies for years, aiming to turn Turkey’s current account deficit into a surplus, but interest rate cuts despite high inflation sparked a currency crisis in 2021 and the lira has continued to fall ever since. during.
For many foreign investors, the lira is searching for an equilibrium point, as expectations grow for increased capital flows into the country’s bonds and equities.
The latest data from the central bank revealed that foreign investors bought Turkish bonds and stocks worth a total of $287 million last week, the biggest inflow since December.
For his part, Turkish Vice President Cevdet Yilmaz said on Thursday that his country could not immediately abandon a government program that protects lira deposits from exchange rate fluctuations, adding that Ankara will follow a phased approach in this regard.
He added that the plan could extend beyond the end of this year and that its immediate abandonment threatened a sharp drop in the lira’s exchange rate.
He went on to say, His country will take steps to reduce inflation and follow free market rules because it is working to increase competitiveness and productivity.
It should be noted that the Turkish Lira Deposit Protection Program was credited with stabilizing the currency in early 2022, but it came at an increasing cost to the Turkish budget and its popularity declined amid the continuous series sharp cuts in central bank interest rates.
The Turkish currency has lost around 21% of its value against the dollar this year. Due to the central bank’s accommodative monetary policy.
Analysts at major investment banks now expect the Central Bank of Turkey to start raising interest rates at the June 22 Monetary Policy Committee meeting.
Inflation hit a 24-year high of 85.5% last October and fell to just under 40% in May.
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