Prior to this weekend’s presidential election runoff, which will determine whether President Tayyip Erdogan will serve a third decade in office, the Turkish lira touched a new low against the dollar on Friday, exceeding 20.
At 1246 GMT, the lira exchanged hands for 20.06 per dollar before a little firming. On Thursday, it reached its lowest closing price of 19.8695, falling 6.7% year to date.
Turkish assets have been under pressure since the first round of the presidential election on May 14, which showed Erdogan was poised to win in Sunday’s runoff.
The country’s sovereign dollar bonds and equities have plunged, while the cost of insuring exposure to Turkish debt has spiked on expectations that Erdogan will forge on with his unorthodox economic policies, which analysts say have brought Turkey to the brink of an economic crash.
“The Turkish lira has been notably depreciating daily” in anticipation of Erdogan’s victory,” said Commerzbank FX analyst Tatha Ghose, adding that the rate of decline “annualises to the equivalent of a major crisis.”
“Many observers forecast (an abrupt) breakout simply because it would be more probable than a system which indefinitely continues on a knife’s edge.”
Reuters reported on Wednesday that there is disagreement and uncertainty within Erdogan’s government over whether to stick with what some call an unsustainable economic programme or to abandon it, insiders say.
After years of market interventions and other methods to cool forex demand, the Turkish central bank’s net forex reserves dropped into negative territory last week for the first time since 2002.
The net forex reserves stood at $-151.3 million on May 19, with the latest drop coming as forex demand surged over the election period due to expectations that the lira would extend its declines after the vote, having lost 44% of its value in 2021 and 30% in 2022.
On Thursday, Erdogan said that Gulf states recently sent funding to Turkey, briefly helping relieve the central bank and markets.