The Turkish lira fell to an all-time low against the US dollar on Tuesday as uncertainty loomed over the outcome of mid-May presidential and parliamentary elections that could mark the first change of power in Turkey in 20 years.
The Turkish currency plummeted to 19.5996:1 against the US dollar, in other words at a level never seen before since the new Turkish lira was created in January 2005, minus six zeroes from its previous value.
After the dizzying devaluation of the Turkish currency at the end of 2021, the government put in place measures to support the lira, which is being undermined by inflation and capital flight.
That venture has failed, summarised Mike Harris of the Cribstone Strategic Macro consultancy.
Although inflation has been steadily slowing for the past five months in Turkey, it was still hovering around 50.51% year-on-year in March.
At the same time, while most major economies chose to implement much tighter monetary policy, raising interest rates to contain the price takeoff, Turkey instead drastically lowered its own.
The Turkish central bank’s (TCMB) main policy rate has thus been cut by 14% to 8.5% from August 2022, on the advice of President Recep Tayyip Erdogan, who believes high interest rates increase inflation – a view that moves against the mainstream of economic theory.
Erdogan’s main rival in the May 14 presidential election, Kemal Kilicdaroglu, promises if elected to return Turkey to economic “orthodoxy” and restore autonomy to the central bank.
The Turkish president’s actions on the economy in general hurt his chances of re-election, to the extent that recent polls now give his main rival a narrow lead.