ISTANBUL, May 31 (Reuters) – The Turkish lira fell to a new record low against the dollar on Wednesday, as President Tayyip Erdogan prepared to decide on the composition of his new cabinet and the direction of economic policy following an election victory.
Former business chief Mehmet Simsek, who is held in high esteem by financial markets for his orthodox political credentials, is almost certain to join the cabinet as either finance minister or vice president, four senior officials said.
A key role for Simsek could signal a departure from Erdogan’s years of unorthodox policies, which have been underpinned by rate cuts amid high inflation that has caused the lira to continue falling.
In its third consecutive day of losses, the lira weakened nearly 1.6% to a record low of 20.75 against the US currency and is down nearly 10% this year.
It later firmed slightly and stood at 20.7150 by 1149 GMT.
The currency’s implied volatility indicators rose on Wednesday, with the one-year metric rising to 45.46% — its highest level in at least a decade and a half, data from Fenics showed.
The focus is now on Erdogan’s announcement of the new cabinet appointments, including the top economic leadership, which is expected to take place on Saturday at the latest.
“I don’t know if he will be the new Treasury Secretary or not, but any credible name is important to give the market a signal that there will be change. Actions speak louder than intentions,” said Cagri Kutman of KNG Securities.
“If you have Mehmet Simsek or someone like you at the helm, that’s a big step. But then the market will be curious about the economic team’s first move – will there be more orthodox guidelines or will they do something worse or will they do something to buy time and see how things go?
Economic growth remained buoyant in the first quarter, with gross domestic product up 4.0% despite the impact of February’s earthquakes, high inflation and a cost-of-living crisis. GDP also grew by 0.3% qoq.
Turkey’s main stock index BIST100 (.XU100) was up about 0.3% at 1148 GMT, while the banking index (.XBANK) was up 0.26%.
Reporting by Ezgi Erkoyun; Additional reporting by Karin Strohecker; Adaptation by Tom Hogue, Clarence Fernandez and Emelia Sithole-Matarise
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