Turkish Lira Drops Ahead Of Vote
The currency dropped to 20 for the first time. People think Erdoğan will win the runoff election.
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The Turkey lira is now at 20 to the US dollar. This shows that the economy and financial system is under lots of pressure. President Recep Tayyip Erdoğan is expected to win the election this weekend.
The currency went down to TL20.33 on Friday. It's the latest in a series of record lows. It's now 20% lower compared to last year. The data is from FactSet.
Erdoğan did very well in the recent election and this made Turkey's financial markets feel uneasy. People who invest money are worried that Erdoğan will continue to do things that might cause problems, like high prices and the lira losing value. Erdoğan has been in charge of Turkey for twenty years.
Two surveys said the 69-year-old president is likely to win the final vote against Kemal Kılıçdaroğlu. Kılıçdaroğlu leads an opposition alliance of six parties. The vote is set for Sunday.
James Reilly, an economist at Capital Economics in London, believes that Erdoğan is likely to follow an unorthodox policy. This may include low interest rates, controlling foreign currency regulations and high inflation.
Turkey is trying to control the lira by directly interfering in the currency market. This includes making it harder for people and companies to buy foreign currency, and encouraging them to keep their money in lira.
The value of deposits in savings accounts that protect against a weak lira has gone up. The increase is from $76bn to $121bn since the beginning of the year. The banking regulator has released this information. Local banks are quoting the lira at around 22 against the dollar. There is tension in the economy.
Foreign markets are causing Turkish assets to suffer. Bond prices have dropped, causing the yield on a long-term bond to increase from 8.1% to 10.4%.
FactSet data shows that the cost to protect against a Turkish debt default has increased. Five-year credit default swaps have risen from 490bp to 676 basis points.
Experts predict that the lira may become weaker if Erdoğan doesn't change his policies. Oxford Economics analysts wrote that due to the imbalance and limited access to US dollars, the lira will probably continue to weaken.
The central bank doesn't have much foreign currency left. The country's current account deficit and attempts to prevent the lira from decreasing caused this. It's a major issue.
Foreign currency reserves went down by $9.5bn before the May 14th vote. The reserves were $53.2bn then and now are $51.3bn. The data includes money borrowed from domestic banks through swaps. The reserves were $75bn at the end of 2022.
On Thursday, Erdoğan stated in an interview that Gulf states had given extra financial support. He didn't say which countries and how much. He assured that our economy, banking, and financial systems are stable. No need to worry.
Mary McDougall in London gave more information for this report.
