The Turkish lira has faced significant weakness, reaching record lows against the US dollar, following President Recep Tayyip Erdogan’s recent re-election in a presidential runoff election. Erdogan’s victory has extended his rule into a third decade, raising concerns among foreign investors and currency markets. While Turkish stocks experienced gains, the lira’s decline signals doubts about the country’s economic future under Erdogan’s leadership.
Lira’s Depreciation and Concerns
The Turkish lira has been impacted by Erdogan’s prolonged tenure, which has increasingly alienated foreign investors. The currency weakened to 20.0785 per US dollar, near its all-time low, following the election results. Analysts predict further depreciation as suggested by the chart below.
Foreign Investor Apprehension
Despite Erdogan’s pledges to address inflation and stimulate economic growth, analysts remain skeptical about the effectiveness of his economic policies. These policies are considered unorthodox, leading to a negative economic outlook for the country. The re-elected president’s victory speech emphasized his commitment to reducing inflation and boosting economic growth, but doubts persist among experts.
Erdogan’s Promised Changes:
To assuage investor concerns, Erdogan has promised to appoint a new economic team that will possess “international credibility.” This suggests a potential departure from the unorthodox policy mix that relies on ultra-low interest rates and heavy state intervention in markets. The announcement of the new cabinet is expected to occur as soon as Friday, according to Turkish officials familiar with the matter.
Stock Market Response
While the lira suffered, Turkish stocks experienced gains following Erdogan’s electoral victory. The benchmark BIST-100 index surged by 3.5%, and the banking index rose over 1%. However, the presence of foreign asset managers holding Turkish stocks has diminished in recent years, and the market is primarily driven by local investors.