Turkish lira drops to record low, signaling move to free market
The lira has come under increasing pressure since Turkish President Tayyip Erdogan was re-elected, currently standing at 23.18 against the U.S. dollar
Turkey’s lira dropped seven percent to a record low on Wednesday, in its biggest daily selloff since a historic crash in 2021, a development that traders consider a “strong signal” that Ankara is moving toward a freely traded currency.
The lira has come under increasing pressure since Turkish President Tayyip Erdogan was re-elected last week. It currently stands at a low of 23.18 against the U.S. dollar, bringing its losses to over 19 percent this year.
Some analysts expect the lira to weaken toward a range of 25-28 against the dollar.
Authorities have taken a hands-on role this year in foreign exchange markets, using up tens of billions of dollars of reserves to hold the currency steady. After forex demand surged during the election process, the central bank’s net reserves touched a record low of negative $4.4 billion last month.
Traders told Reuters that the decline in the bank’s forex and gold reserves has stopped, and that they could enter an upward trend, along with signs of change in forex policies.
"There are many regulations and changes that need to be made but the destination we are headed in is becoming clearer every day. We are going towards the lira's value being determined by market conditions," one trader said.
Upon announcing his new cabinet, Erdogan named Mehmet Simsek, a former deputy prime minister who is well regarded by foreign investors, as finance minister. Simsek later stated the economic policy needed to return to "rational" ground.
Markets are also waiting for the appointment of a new central bank governor to replace Sahap Kavcioglu, who spearheaded rate cuts under Erdogan's unorthodox policies.