Lira slides to all-time low ahead of Erdogan’s cabinet reshuffle

May 31, 2023 (MLN): Turkey's lira tumbled on Wednesday to a fresh record low against the dollar as President Tayyip Erdogan prepared to decide the shape of his new cabinet and the direction of economic policy after an election triumph, as Reuters reported.

In its third successive day of losses, the lira weakened nearly 1.5% to a record of 20.75 against the U.S. currency, taking its losses this year to nearly 10%.

Investors have been concerned about the sustainability of Turkey's unorthodox economic policies as it followed a low-rate programme championed by Erdogan.

The focus is now on whom he will appoint to top economic policymaking roles and if there will be a course change towards economic orthodoxy.

A meeting this week between Erdogan and Mehmet Simsek, a former economy chief respected by investors for his orthodox policy credentials, fuelled speculation over a possible pivot to more conventional policies.

"I don't know whether he will be the new finance minister or not, but any credible name is important to give a signal to the market that there will be change. Action speaks more than intention," said Cagri Kutman of KNG Securities.

"If you have Mehmet Simsek or a similar person in charge that is a big move. But then the market will be curious about the first move of the economic team – will there be more orthodox policies or will they do something worse or will they do something to buy time and see how it goes?"

First-quarter economic growth stayed buoyant despite the impact of southern earthquakes, high inflation and a cost of living crisis.

Turkey's economy expanded 4% in the first quarter of the year, just above expectations, official data showed on Wednesday, despite the impact of February's earthquakes that killed more than 50,000 and left millions homeless.

First-quarter gross domestic product (GDP) grew 0.3% from the previous quarter on a seasonally and calendar-adjusted basis, data from the Turkish Statistical Institute showed.

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