The Turkish lira fell to a record low on Monday after President Tayyip Erdogan’s victory in this weekend’s elections shook investors, while most Latin American currencies rose on expectations that the United States will avoid a debt default.
The struggling lira fell 0.6% to a new low of 20.10 per dollar, in addition to falling 7% since the start of the year and down 90% over the past decade. However, stock markets in Istanbul rose today.
Erdogan’s re-election extends his rule to a third decade, allowing him five more years to pursue increasingly authoritarian policies that have led to polarisation in Turkey, which is struggling with a cost-of-living crisis, a collapsing currency and depleted foreign reserves.
“An Erdogan victory offers no solace to any foreign investor,” said Hasnain Malik, head of equity research at Tellimer. “There is a painful crisis looming that affects all assets, with very high inflation, very low interest rates and no net foreign reserves.”
Investors are worried about a looming economic crisis fuelled by rapidly rising inflation and a possible extension of Erdogan’s unorthodox policies, including cutting interest rates to dampen the price spiral.
“Going short on the TRY remains incredibly expensive, but the president’s preference for cutting interest rates to tackle inflation is likely to make that less so over time,” said Elsa Lignos, head of FX strategy at RBC Capital Markets.
