Turkish lira hits record low after appointment of new finance minister
The Turkish lira plunged to a new record low of 21 against the dollar on Monday, continuing losses suffered since President Recep Tayyip Erdogan won Sunday’s presidential runoff.
The Turkish lira traded at 21.1 to the dollar on Asian financial markets, a shaky initial reaction to the appointment of Mehmet Şimşek as Turkey’s finance minister. The price was not far from the record low the lira recorded against the dollar last week, at 21.8 per dollar.
“Turkey has no other choice but to return to a logical basis. Turkey’s rules-based, predictable economy will be the foundation for the desired prosperity,” he said, adding that the priority will be macroeconomic stability in an environment of increasing global challenges and geo-political tension. “Our main goals will be to establish fiscal discipline and ensure price stability to achieve sustained high growth,” he said.
“Şimşek, who was highly regarded in financial markets when he served as finance minister and then deputy prime minister between 2009 and 2018, added that reducing Turkey’s soaring inflation to a one-digit figure would be another priority.”
“It is necessary for our country to reduce inflation back into the single digits in the medium term, to increase predictability in all areas and to accelerate structural transformation, which will reduce the current account deficit,” he said.
Annual consumer price inflation in Turkey reached an all-time high of 24 years, surpassing 85% last year and reaching 44% in April.
“Fiscal policies and structural reforms will support the Turkish Central Bank’s efforts to reduce inflation,” Şimşek said.
The Central Bank of Turkey’s policies to support the lira and stabilize it caused net foreign reserves to descend to the negative zone last month for the first time since 2002.
The lira hit a record low of more than 20 pounds to the dollar after the presidential election runoff on May 28, and the currency has lost more than 90% of its value over the past decade after a series of declines that were worst in late 2021.
According to a memo prepared by Morgan Stanley’s analysts, “Turkey’s currency could fall to 26 per dollar, sooner than previously expected, and close to 28 pounds per dollar by the end of the year, unless there is a change in policy.”
The Turkish president is taking an “unconventional” approach in order to limit high inflation, through low interest rates. That approach left markets subject to an “unpredictable” mix of regulations and special interventions, with new measures taken informally and repeatedly, according to Bloomberg.
