Turkey’s lira plunged 7 percent to a record low on Wednesday in its biggest daily selloff since a historic 2021 crash, as the newly elected government appeared to loosen stabilizing measures in its pivot to more orthodox policies, Reuters reported.
The lira has come under pressure since President Recep Tayyip Erdoğan was re-elected on May 28. It stood at a record low of 23.17 against the dollar at 1023 GMT on Wednesday, bringing its losses this year to more than 19 percent.
Erdoğan announced his new cabinet over the weekend and named Mehmet Şimşek, a former deputy prime minister who is well regarded by foreign investors, as finance minister. Şimşek later said economic policy needed to return to “rational” ground.
Markets are also waiting for the appointment of a new central bank governor to replace Sahap Kavcioglu, who spearheaded rate cuts under Erdogan’s unorthodox policies.
“We are seeing policy normalization play out,” said Tim Ash at BlueBay Asset Management.
“I think we are seeing the impact of Simsek pushing [the Turkish central bank] for rational policy.”
For much of this year, authorities have taken a hands-on role in foreign exchange markets, using up tens of billions of dollars of reserves to hold the lira steady.
Bankers say the lira’s continued gradual depreciation will improve market conditions and halt a decline in central bank reserves.
“The lira is getting closer every day to a level that will not need to be defended with reserves. I expect losses to continue for a while,” a forex trader said, adding that sharp intraday losses show the currency is nearing “expected levels.”
Some analysts expect the lira to weaken towards a range of 25-28 against the dollar.