victory Recep Tayyip Erdogan in the second round of elections Türkiye empowers the politician in power and it will give him the opportunity to continue for one more term. When the election drink is over, it’s time to rule, and Erdogan’s job will not be easy. Analysts and market consensus predict that economic turmoil will come in the coming months due to the risk of bankruptcy, according to a report sent to the media by the house of XTB.
“Erdogan’s victory will likely mean continued capital flight from Turkey, but that has become much more difficult after the central bank’s actions,” the XTB report said. Morgan Stanley estimates that the value of the lira could drop by around 30 percent. The Central Bank of the Republic of Turkey has approximately $25 billion in reserves to protect the lira. This is a very small amount as up to $177 billion has been spent defending the currency in the last 16 months. “The five-year credit default swap margin has narrowed recently and is now significantly below record levels (around 900 percentage points). Currently, the five-year CDS margin represents a default risk of approximately 11% with an improvement rate of 665 percentage points. 40
“I don’t expect a sudden shock reaction from the markets. Uncertainty is over and now (markets) will position accordingly. However, with the continuation of previous policies, the lira will continue to depreciate,” said Turkish economist Mustafa Sönmez, in statements compiled by the Efe agency. 7% against the dollar, up to 20.1 units per dollar compared to the normal 19.9 last week.
As with similar movements last week, The lira quickly recoupled its losses, but returned to the bearish path in the morning and appears to have been permanently established at 20 units per dollar for the first time today., equivalent to 21.5 lira per euro. According to all economists consulted, the exchange of the lira against the dollar is artificially supported by the Central Bank, which sells the currencies to stabilize the currency whenever a loss is observed in the markets.
The bank itself already agreed in 2021 “direct intervention in the markets through sales due to the unhealthy development of exchange rates”, and this practice looks set to continue, but analysts wonder how long this can be sustained. Turkish business media reported last week that the Central Bank’s net reserves reached negative values for the first time since 2002, after losing $25,000 million in two months.
Loss of dollar reserves
Because of the bleeding of reserves Various mechanisms have been established by the Government in recent months to ensure the stability of the currency. An example of this was the savings account program launched by the Executive in December 2022, which offers high profitability for fixed deposits as well as guaranteed dollar-rate value.
Economist Bilge Yılmaz, financial advisor to the opposition party IYI, pointed out that there was 110 billion dollars in this plan a few weeks ago and assured that these accounts would be closed gradually to clean up the economy. However, this consolidation will inevitably raise interest rates significantly, which is currently 8.5%.With Erdogan’s clear indication, annual inflation exceeds 40%.