A man holding a Turkish flag.
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The Turkish lira sank Monday as incumbent Recep Tayyip Erdogan secured his victory in the 2023 presidential election, extending his rule into a third decade in power.
The currency was trading at 19.97 against the greenback as of Monday 4 a.m. London time after slipping to 20 to the dollar earlier in the session.
“We have a pretty pessimistic outlook on the Turkish Lira as a result of Erdogan retaining office after the election,” Wells Fargo’s Emerging Markets Economist and FX Strategist Brendan McKenna told CNBC’s “Squawk Box Asia.”
McKenna forecasts that the lira will reach a new record low of 23 against the dollar by end of the second quarter, and then 25 as early as next year. It has lost some 77% of its value against the dollar over the last five years. He expects Turkey’s unorthodox monetary and economic policy frameworks to remain in place going forward.
Turkey’s monetary policy places an emphasis on the pursuit of growth and export competition rather than taming inflation, and Erdogan endorses the unconventional view that raising interest rates increases inflation.
“The current set up is just not sustainable,” said BlueBay Asset Management’s Senior EM Sovereign Strategist Timothy Ash via email.
“With limited FX reserves and massively negative real interest rates the pressure on the lira is heavy,” Ash continued.
The Istanbul stock exchange is set to open at 7 a.m. London time.
“It’s a very bleak economic and markets outlook for Turkey,” McKenna added.
He noted that the “one silver lining” in the whole scenario could be the Turkish central bank’s ability to secure currency reserve swap lines with countries in the Middle East and China.
“If they can continue to draw on those lines and possibly extend and enhance those reserve currency lines, maybe there’s some support in the central bank FX intervention,” he added.
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