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The dollar rose to a fresh record high versus the Turkish lira
USDTRY,
on Monday despite re-elected President Recep Tayyip Erdoğan appointing a finance minister who pledged a “rational” economic policy.
“Transparency, consistency, predictability and compliance with international norms will be our basic principles in achieving the goal of raising social welfare,” said Mehmet Şimşek, who had previously held the post before leaving in 2018, on Sunday.
“Turkey has no choice but to return to a rational basis…We will prioritise macro financial stability,” he added.
In a note published over the weekend, Goldman Sachs said the choice of Şimşek ”increases the likelihood that monetary policy will shift towards a more orthodox direction.”
However, Şimşek’s appointment did little to calm forex markets as investors were also waiting to see if Erdoğan would change leadership at the central bank to match the finance minister’s stance.
Ten years ago the U.S. dollar would buy around two Turkish lira. Now the buck is worth more than 21 lira after international investors lost faith in Erdoğan’s stewardship of the economy as he challenged othodoxy by claiming reducing interest rates was the way to combat inflation.
Erdoğan has forced the central bank over the past two years to cut borrowing costs from nearly 20% in 2021 to the current 8.5% even though inflation is running around 40%.
“Reducing inflation to single digits in the medium term . . . and accelerating the structural transformation that will reduce the current account deficit are of vital importance for our country,” Şimşek said on Sunday.
High inflation has encouraged local investors to purchase stock to generate returns, and the BIST index
XU100,
rose 3.5% on Monday, for a gain of 99% over the last 12 months.
