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Turkish lira hits record low, stocks gain after Erdoğan secures re-election

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Turkey’s lira hit fresh record lows against the dollar on Monday, though stocks rallied, after President Recep Tayyip Erdoğan secured victory in Sunday’s presidential election, extending his increasingly authoritarian rule into a third decade, Reuters reported.

The lira weakened to 20.077 to the dollar, breaking through the previous record low reached on Friday.

The lira has slumped more than 7 percent since the start of the year, and lost more than 90 percent of its value over the past decade, with the economy in the grip of boom-and-bust cycles and rampant bouts of inflation.

Since a 2021 currency crisis, Turkish authorities have taken an increasingly hands-on role in foreign exchange markets with daily moves becoming unnaturally small while FX and gold reserves have dwindled.

“In our view, Erdoğan’s biggest challenge is Turkey’s economy,” said Roger Mark, analyst with Ninety One. “His victory comes against a backdrop of perilous economic imbalances, with his heterodox economic model proving increasingly unsustainable.”

Erdoğan prevailed despite years of economic turmoil which critics blame on unorthodox economic policies which the opposition had pledged to reverse.

Meanwhile, stocks enjoyed gains with the benchmark BIST-100 index (.XU100) up nearly 5 percent and banking index (.XBANK) rising by 4 percent. The share of foreign asset managers holding Turkish stocks has dwindled in recent years and the market is chiefly driven by local investors.

Still, analysts said it would be tough to hold the gains amid broader economic troubles.

“I was expecting a short-lived rally once the uncertainty of regarding the elections ended,” said investment strategist Tunc Şatıroğlu, adding that he expected the bear market to resume in the coming days.

Erdoğan’s surprisingly strong showing in the first round of the election on May 14 had triggered a selloff in Turkey’s international bonds and a spike in costs to insure exposure to its debt via credit default swaps (CDS) amid fading hopes of a change in economic policy.

The nation’s dollar bonds slipped to their lowest in at least six months last week, while CDS rose to a seven-month high.

On Monday, Turkey’s international bonds were steady while CDS were hovering at Friday’s closing level.

Barclays noted that Turkey’s external financing needs are limited in the coming months, due to an influx of summer tourist dollars and limited payments due until November.

Trading is expected to be thin on Monday, with many markets in Europe as well as the United States closed for holidays.

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