Turkey has not experienced such a significant freefall of the Turkish lira since 2021. With a decline of over 7 percent, the lira’s exchange rate dropped to around 23.17 against the dollar. The currency has already depreciated by more than 19 percent this year alone.
The re-election of President Recep Tayyip Erdogan has not provided any positive stimulus to the exchange rate. Nevertheless, traders see a silver lining in the decline. According to Reuters, traders perceive the drop as a “strong signal” that Ankara exerts less influence on the exchange rate, allowing the currency to be freely traded.
Authorities have intervened directly in the currency markets for a significant part of this year, utilizing tens of billions of dollars from reserves to stabilize the lira. Last month, Turkey’s foreign reserves reached a record low, with a negative amount of 4.4 billion dollars.
Traders told Reuters that the decline in the central bank’s foreign reserves has halted since Erdogan’s re-election. Additionally, there has been a change in policy, which may lead to the replenishment of reserves. “There are many rules and changes that need to be implemented, but the destination we are heading towards is becoming clearer day by day. We are moving towards a situation where the value of the lira is determined by market conditions,” said one of the currency traders.
Earlier this week, Erdogan also appointed a new Minister of Finance. Mehmet Simsek, former Deputy Prime Minister, is tasked with rekindling investor confidence. In a speech, he stated that Turkey’s economic policy must become “rational” again.
However, analysts do not expect the lira to have reached its lowest point yet. Reuters reports that analysts anticipate a lira exchange rate between 25 and 28 against the dollar.