The Turkish lira (TRY) has weakened and hit record lows against the US dollar after President Tayyip Erdogan was re-elected, securing another 5-year term. TRY dropped sharply on Monday and fell lower than its previous record low it touched on Friday, as Erdogan’s re-election on Sunday has solidified expectations of unconventional economic policies.
Later, on Tuesday, we note the release of Turkey’s Trade Balance for April, and anything less than the prior reading of -8340B could weaken the TRY.
Currency crisis worries
After years of boom-and-bust cycles (where the economy grew, and then it shrank) and no indication that Erdogan’s policies will change, economists have voiced their concerns about the high risk of a currency crisis. The lira has weakened further after President Erdogan promised to control high inflation by keeping the current low-rate policy and going against all economic theory.
With the country’s inflation remaining elevated, net foreign exchange reserves being below zero, the current account deficit at its widest historically, and the central bank showing no signs of raising rates, it is no surprise that the lira has hit record lows. The lira has fell more than 7% since the beginning of the year and lost more than 90% of its value over the past decade.

2021 currency crisis
The lira was the worst performing currency in emerging markets in 2021. TRY ended 2021 down 44%, making it the worst year since 2001 under Erdogan. Erdogan had slashed interest rates despite soaring inflation and had appealed for Turks to trust his unorthodox policies. The currency crisis caused largely by Erdogan’s “new economic programme” concentrated on exports and credit despite the lira’s collapse and inflation of more than 21%. The second since 2018, the crisis had eaten away Turks’ savings and earnings while currency fluctuations had hurt budgets and plans for both households and businesses.
Following the currency crisis in 2021, Turkish authorities have closely monitored the foreign exchange markets, where currency moves have become smaller, and FX and gold reserves declined. With Erdogan’s victory, the TRY is under further pressure.
Market hopes for a change in policy fade away
In the first round of the elections on 14th of May, Erdogan’s unexpected strong showing led to a sell-off in Turkey’s international bonds, with the expenses for insuring against its debt through credit default swaps (CDS) rising, as optimism for a shift in economic policy waned.
As many analysts and investors noted, the election result suggests a continuation of policies that have led to a decline in the country’s economic health and stability. The depreciation of the lira and low reserves have increased concerns for bond investors.
Investors have criticised Erdogan’s belief that the only way to tackle inflation is to cut borrowing costs and many market participants will be closely watching to see if there is the slightest possibility of a shift toward policies that are more in line with global economics.
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