A man holding a Turkish flag.
Uriel Sinai | Getty Images
this turkish lira Stocks fell on Monday as incumbent President Recep Tayyip Erdogan won the 2023 presidential election, extending his rule to a third decade in power.
The currency was trading at 19.97 to the dollar by 4:00 a.m. London time on Monday, having fallen as low as 20 earlier in the session.
“With Erdogan staying in office after the election, we’re pretty pessimistic about the Turkish lira,” Brendan McKenna, emerging markets economist and currency strategist at Wells Fargo, told CNBC’s “Squawk Box Asia.”
McKenna predicts the lira will hit a record low of 23 per dollar by the end of the second quarter before hitting 25 as early as next year. It has lost about 77% of its value against the dollar over the past five years. He expects Türkiye’s unorthodox monetary and economic policy framework to persist.
Turkey’s monetary policy has emphasized the pursuit of growth and export competition rather than curbing inflation, and Erdogan subscribes to the unconventional view that raising interest rates will increase inflation.
“The current setup is not sustainable,” Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said by email.
“With limited reserves and negative real interest rates, the lira is under pressure,” Ash continued.
The Istanbul Stock Exchange will open at 7:00 am London time.
“The economic and market outlook for Turkey is very bleak,” McKenna added.
He noted that the “silver lining” in the whole scenario could be the ability of Turkey’s central bank to secure currency reserve swap lines with countries in the Middle East and China.
“If they can continue to draw on these lines, and possibly expand and strengthen these reserve currency lines, then central bank foreign exchange intervention may get some support,” he added.