1 of 2 | A man sells Turkish flags next to a currency exchange office in Istanbul, Turkey. The country's lira plummeted more than 7% to record lows Wednesday in a second massive sell-off since President Recep Tayyip Ergodan was re-elected last month. File Photo by Sedat Suna/EPA-EFE
June 7 (UPI) -- Turkey's lira plummeted more than 7% to record lows Wednesday in a second massive sell-off since President Recep Tayyip Ergodan was re-elected last month.
The lira's dramatic plunge to 23.16 against the dollar Wednesday brings its losses to nearly 16% in the wake of two elections last month, as Erdogan secured a new five-year term over opposition leader Kemal Kiliçdaroglu.
Erdogan has been Turkey's president since 2014 and its prime minister before that from 2003 to 2014. The lira has lost nearly 90% of its value over the past 10 years and suffered an historic crash in 2021.
Investors have long considered Erdogan's economic policy of ultra-low interest rates combined with aggressive state intervention in the markets "unorthodox."
"The Turkish lira fell to a new all-time low as markets speculate that the country's finance minister will loosen controls that helped to stem the currency's depreciation," said Neil Wilson, an analyst at broker markets.com said Wednesday.
Over the weekend, Erdogan reshuffled his Cabinet, tapping former deputy prime minister Mehmet Simsek as the next finance minister who called for economic policy to return to "rational" ground.
"We are seeing policy normalization play out," said Tim Ash at BlueBay Asset Management. "I think we are seeing the impact of Simsek pushing the Turkish central bank for rational policy."
Erdogan has not named a new central bank governor to replace Sahap Kavcioglu, who was responsible for originally launching interest rate cuts.
Despite the changes, foreign exchange traders expect the lira's losses to "continue for a while," since Erdogan has been known to change his mind on conventional policies in the past.
"Even without political interference, the process of getting Turkey onto a sustainable path is going to be turbulent, and likely involves substantial devaluation," said Paul McNamara, director of emerging market debt at asset manager GAM.
"Orthodoxy would involve allowing the lira to find a sustainable level without intervention and abandoning the de facto capital controls currently in place," he said.