Stock market welcomes certainty
Erdogan victory sends lira to record low
May 29, 2023, 3:18 p.m
The Turkish lira is worth less than ever before: Many experts associate the election victory of Turkish President Erdogan with concerns that the country will not be able to get inflation under control. Despite all the pessimism, prices rose on the Istanbul Stock Exchange.
Recep Tayyip Erdogan’s victory in Turkey’s presidential election has dealt another blow to the national currency. In turn, the dollar rose 0.6 percent on Monday and was the most expensive at 20.06 lira. “Erdogan’s victory is no consolation for foreign investors,” said Hasnain Malik, manager at Tellimer. “Only the most optimistic would hope that he now feels politically safe enough to return to orthodox economic policies.”
Turkey is in a crisis and is struggling with high inflation, which at times exceeded 85 percent last year. One reason for this is that the central bank did not raise the key interest rate in accordance with economic theory, but lowered it at Erdogan’s request. The Turkish lira, which has already lost significant value due to Erdogan’s economic and monetary policy, has fallen by more than six percent against the dollar since the beginning of the year. In the past five years, it has fallen by around 80 percent.
Irrespective of this, investors on the Istanbul stock exchange welcomed the certainty about the future government with rising prices. The leading index BIST 30 rose by 4.4 percent to 5269.87 points – and thus to the highest level since the days before the first round of elections. In mid-May, the pending runoff election initially brought losses to the leading index. Stockbrokers had referred to uncertainties in terms of monetary and economic policy.
The market said investors should now be watching carefully whether Erdogan is finally taking measures to curb inflation. A more conventional economic and monetary policy is seen as necessary by many, one trader said. Erdogan’s policy is considered unorthodox because he only responded to the massive increase in inflation with moderate interest rate hikes. “The fear of sticking to the current economic policy is great,” said financial market expert Thomas Gitzel from VP Bank.
“At its peak, the inflation rate was over 86 percent, while the key interest rate rose to just 12.5 percent,” said Gitzel. In the meantime, the key interest rate has been lowered again to 8.5 percent, although the inflation rate is still over 40 percent. “But that will not get the high inflation rates under control,” said Gitzel. The population in Turkey will continue to suffer from a high loss of purchasing power. If the Turkish lira continues to depreciate, the risk of default increases.