The president of Türkiye Recep Tayyip Erdogan has won, the Turkish lira can now sink, so to speak.
In fact, the currency continues to collapse, testing new historic lows, after the victory in the elections in Turkey of President Erdogan who, beating the challenger Kemal Kilicdaroglu in the run-off at the end of May, he secured a third term.
Erdogan will remain president until 2028.
The reaction on the forex market? The collapse of the lira, precisely, which was already not in good waters, as a victim of what is now known as the “sultan’s” monetary madness.
Turkish lira KO: -7% on the US dollar, sell-off from historic 2021 crash
Yesterday the Turkish currency slipped to its new lowest value ever, capitulating about 7% against the US dollar: a sell-off which, in terms of intensity, recalls the historical crash of 2021.
The lira has fallen to share 23.16 against the greenback, extending the losses suffered since the beginning of the year to over -19%.
Analysts who are looking at the currency and its plunge this time speak not so much of Erdogan’s monetary madness, who has always tried to challenge the monetary laws, saying he is ready to dampen the galloping inflation in Turkey not with rate hikes, but exactly with the opposite, i.e. with rate cuts.
Rather, the fall is explained by the fact that the Turkish president, seeing himself reconfirmed with the elections to the highest seat in the country, he would have decided to leave the floor to the market.
In what sense?
Erdogan and maneuvers on foreign exchange reserves to lock down the lira
To understand what is happening we must remember that, during the electoral campaign carried out before the appointment of political elections, Erdogan’s Turkey has intervened several times on forex.
Objective, armor the Turkish lira. How: with the tool of foreign exchange reserves.
Their use has been so intense to the point of bringing them to negative numbers. In fact, the Reuters agency has released the news of how the net value of the foreign exchange reserves present in the vaults of the Central Bank of Turkey has dropped even below zero, for the first time since 2022sinking to -151.3 million dollars last May 19th.
Erdogan practically forced the Central Bank of Türkiye, known for being a puppet institution, to use tens of billions of dollar reserves in order not to make the lira capitulate, during the previous period l’Election Day.
But now the elections have concluded, decreeing the victory of Erdogan. Everything went according to the president’s plan, making the need to secure the lira from trader divestments less urgent.
In leaving the floor to the market, Erdogan thus allowed (finally, some would say) the market to price the lira.
And the resounding rejection was not long in coming.
Some traders interviewed by Bloomberg said it clearly: Turkey’s banks have stopped selling dollars in an attempt to keep the Turkish lira standing, thus giving way to strong sell-offs on the currency.
The result is the 7% collapse reported yesterday by the Turkish lira: a historic collapse, which immediately brought to mind the crash of 2021 and which confirmed the sharpest decline in absolute terms of the currency, against the american dollar.
The Goldman Sachs alert. Erdogan’s manipulation
Even before the ballot when, following the first round of elections, Erdogan had failed to secure victory immediately, the Turkish lira had collapsed.
The collapse was due not so much to the electoral result as to the note that had been issued by Clemens Grafe, strategist in the forex division of Goldman Sachs.
Grafe had reported the news regarding the decline in foreign assets, on a net basis, held by the central bank of Turkey, down to the negative value of -14.8 billion dollars, launching the alert on the liquidity of the lira and pointing out how the currency had up to that moment been manipulated and inflated precisely with the movements that had affected the reserves of the central bank.
The Goldman Sachs strategist had issued a warning that the value of the Turkish lira was well above that justified by the fundamentals.
Simsek’s return to Finance, the cure for inflation is up to him
At this point, with the parenthesis of the elections closed, hopefully in Mehmet Simsek, former banker of Merrill Lynch appointed by Erdogan to hold the post of finance minister.
It was Simsek himself, on the occasion of his appointment to the dicastery, who spoke of the need for Turkey to go back to adopting “rational” measures in the management of the economy.
“Price stability will be our main target – said Şimşek – Bringing inflation down to single digits, in the medium term, is of crucial importance for our country”.
There is a lot of work to do, given that, “thank you” allto Erdogan’s monetary follyTurkey’s inflation rate shot up in October 2022 to 85%.
In Erdogan’s delusional messages, who proclaimed himself an enemy of interest rates, in the past there have also been clear references to religion, in order to justify the succession of rate cuts.
And in a recent interview with on CNN released a few weeks ago, Erdogan’s delirium continued:
“Please follow me after the election. You will see that both inflation and interest rates will go down“, he promised, then responding with “Yes, absolutely” to the question of whether, with his victory, there would be no changes to the country’s monetary policy.
Simsek, a former banker at Merrill Lynch, previously held the position of Minister of Finance and, also, of Deputy Prime Minister, always with Erdogan, in the period between 2009 and 2018, before taking a five-year break from politics.
Meanwhile, in Türkiye, inflation has slowed significantly, confirming at the same time monstrous growth rates. In May, the growth rate amounted to +39.59%.
Over the past five years, the Turkish lira has burned more than 80% of its value.