Turkey’s Lira Dips Near Historic Lows Following Erdogan Victory
In the aftermath of the May runoff, the Turkish lira moved toward a record low as markets weighed the outcome of the presidential race. Traders watched the currency closely against the dollar on global platforms, with the latest data hinting at renewed pressure on Turkish financial assets. The reaction reflected investors’ assessment of policy direction under the re-elected leadership and the perils of high inflation in the economy.
By 12:14 Moscow time, the dollar was quoted near 20,900 lira on major foreign exchange venues, marking a drop of roughly one percent from start-of-session levels. A subsequent, limited correction followed, and by 13:17 Moscow time the dollar traded around 20,882 lira, indicating a modest retreat of about 0.72 percent from the session’s open. The day’s price action underscored ongoing volatility rather than a stable trend.
Earlier data had shown the dollar at approximately 19,972 lira at the May 26 auction and near 20.1 lira on May 25, illustrating a broader trajectory of depreciation that has challenged the Turkish currency for months. Market observers pointed to the policy framework as a central driver of near-term moves, with expectations for how the new administration might steer monetary policy going forward.
Analysts at major institutions weighed in with divergent views. A note from Morgan Stanley suggested that the lira could weaken further against the dollar due to Erdogan’s stance on interest rates, which leans toward a softer policy in the face of persistent inflation. The bank’s forecast anticipated further depreciation by year-end, reflecting the tension between growth momentum and inflationary pressures. These projections highlighted the ongoing debate over credible price stabilization tools in the Turkish economy.
Meanwhile, Mihai Zeltser from BCS World of Investments offered a contrasting outlook, predicting that the lira could begin to strengthen in the near term. The analyst cited a potential easing of inflation and a perceived stabilization in macroeconomic expectations as triggers for a technical rebound in the currency.
Following the election, Erdogan’s re-election was interpreted by market participants as continuity in policy direction, with a continued emphasis on a softer monetary stance as inflation remains elevated. Historical experience under similar policy settings has shown that the lira can face rapid adjustments if inflation expectations become unanchored. However, some observers noted that the election result appeared broadly priced into markets and that inflation in Turkey had already shown some improvement, which could support a gradual stabilization in the currency over time. The possibility of a renewed shift in the USD/TRY pair below earlier winter highs was described by several strategists as a plausible scenario, though not guaranteed.
Election results had Erdogan capturing a narrow majority of support, with about 52 percent of votes in the run-off held on Sunday, May 29. The outcome reinforced expectations about the political stability needed to support ongoing policy measures aimed at restoring confidence in the Turkish market.
On the inflation front, recent data indicated a slowdown, with annual consumer price growth in Turkey easing from roughly 50.5 percent to around 43.68 percent in April 2023, a trend that market watchers consider relevant when assessing future policy moves and currency resilience. Trends in inflation and currency dynamics remain intertwined, making the outlook highly sensitive to domestic data releases and external financial conditions.