A man holding a Turkish flag.
Uriel Sinai | Getty Images
turkish lira Incumbent Recep Tayyip Erdogan on Monday secured his victory in the 2023 presidential election, extending his reign into a third decade in power.
The currency was trading at 19.97 against the greenback as of 4 a.m. Monday after slipping to $20 against the greenback earlier in the session.
“We have a very pessimistic view on the Turkish lira as a result of Erdogan staying in office after the election,” Brendan McKenna, emerging markets economist and FX strategist at Wells Fargo, told CNBC’s “Squawk Box Asia.”
McKenna forecasts the lira will hit a new record low of 23 against the dollar by the end of the second quarter, and then 25 early next year. It has lost about 77% of its value against the dollar in the last five years. They expect Turkey’s unconventional monetary and economic policy framework to continue.
Turkey’s monetary policy emphasizes growth and export competitiveness rather than overcoming inflation, and Erdogan supports the unorthodox view that raising interest rates drives inflation.
“The current set-up is not sustainable,” Timothy Ashe, senior EM sovereign strategist at Bluebay Asset Management, said by email.
“With limited FX reserves and largely negative real interest rates, the pressure on the lira is enormous,” Ashe continued.
The Istanbul Stock Exchange will open at 7 am London time.
“It’s a very gloomy economic and market outlook for Turkey,” McKenna said.
He said “one silver lining” in the whole scenario could be the Turkish central bank’s ability to secure currency reserve swap lines with countries in the Middle East and China.
“If they can continue to draw on those lines and possibly extend and extend those reserve currency lines, then perhaps there is some support for central bank FX intervention,” he added.
