Turkish Lira hits record low ahead of election runoff
The Turkish lira has reached an all-time low of 20 against the US dollar, intensifying concerns as the country approaches a crucial presidential election runoff. This steep decline comes just days before the election that will determine whether President Tayyip Erdogan extends his rule into a third decade.
At 0508 GMT on Friday, the lira briefly touched the 20.00 mark against the US currency and has remained dangerously close to that level. With a weakening trend throughout the year, the currency closed at 19.8695 on Thursday, reflecting a decline of 6.4% since the beginning of 2023.
The repercussions of the lira's sharp decline have reverberated across multiple sectors in Turkey. Sovereign dollar bonds and equities have experienced substantial plunges, while the cost of insuring exposure to Turkish debt has surged following the first round of the presidential election held on May 14.
President Erdogan sought to provide reassurance amid the crisis, revealing in a recent interview that Gulf states had recently sent funding to Turkey, offering temporary relief to the central bank and the markets. He expressed his intent to meet and express gratitude to the leaders of these nations following Sunday's election runoff.
In the initial round of the presidential election, Erdogan held a considerable lead over his main rival, Kemal Kilicdaroglu. However, he fell just short of securing the majority support required to avoid a runoff, leading to the upcoming election on Sunday that will determine the country's future leadership.
The surge in forex demand during the election period reflects expectations of further devaluation of the lira. The currency has already experienced a substantial loss of 44% in value in 2021, with an additional 30% decline in 2022.
The lira's downward trajectory this year can be primarily attributed to the devastating earthquakes that struck Turkey in February, resulting in the loss of over 50,000 lives and widespread destruction in southern regions. Since the first round of the election on May 14, the lira has further weakened by 2.1%.
Adding to the concerns, official data released on Thursday revealed that the Turkish central bank's net foreign exchange reserves have plunged into negative territory for the first time since 2002. As of May 19, the reserves stood at a concerning -$151.3 million.