Global Courant 2023-05-29 12:37:09
A man with a Turkish flag.
Uriel Sinai | Getty Images
The Turkish lira sank Monday as incumbent Recep Tayyip Erdogan secured victory in the 2023 presidential election and extended his rule to a third decade in power.
The currency was trading at 20.44 against the greenback as of 10am local time Monday morning, after hitting a new all-time low last week.
“We have a pretty pessimistic view on the Turkish lira as a result of Erdogan retaining post-election,” Wells Fargo’s Emerging Markets Economist and FX Strategist Brendan McKenna told CNBC’s “Squawk Box Asia.”
McKenna predicts 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. It has lost some 77% of its value against the dollar over the past five years. the dollars. He expects Turkey’s unorthodox monetary and economic policy frameworks to remain in place going forward.
Turkey’s monetary policy emphasizes the pursuit of growth and export competition rather than taming inflation, and Erdogan subscribes to the unconventional view that raising interest rates increases inflation.
“The current setup is simply not sustainable,” said Timothy Ash, Senior EM Sovereign Strategist at BlueBay Asset Management, via email.
“With limited foreign exchange reserves and hugely negative real interest rates, pressure on the lira is high,” Ash continued.
Istanbul’s leading index, Turkey’s ISE National 100, gained about 2% in the first hour of trading.
Credit default swaps, which measure the cost of insuring exposure to Turkish debt, also spiked.
Five-year CDS traded at around 664.18 bps, up 20% from the 550 bps level prior to the runoffs, according to data from Refinitiv.
These developments reflect market participants’ belief that orthodox policies, promised by the political opposition, were the only way to pull Turkey’s economy out of a potential crisis, said Selva Demiralp, an economics professor at Koç University.
Meanwhile, MarketVector CEO Steven Schoenfeld wrote in an email. “If the lira continues to fall and inflation rises again due to the policy of inappropriately low interest rates, we could see a repeat of the ‘flight to safety’ allocation to Turkish stocks by local investors, driving the market up sharply in 2022. would go. “
‘Green economic outlook’ ahead
“It’s a very bleak economic and market outlook for Turkey,” Wells Fargo’s McKenna added.
He noted that the “only silver lining” in the entire scenario could be Turkey’s central bank’s ability to secure currency reserve swap lines with countries in the Middle East and China.
“If they can continue to use those lines and potentially expand and improve those reserve currency lines, there may be some support in the central bank’s FX intervention,” he added.
(TagsToTranslate)Breaking News: Politics
