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President Erdogan names the new treasury and finance minister
Turkish President Recep Tayyip Erdogan was sworn in on Friday, June 2 as he looked to name his new government and most importantly a new finance minister. Erdoğan began a historic third term with the appointment of internationally known and respected former banker Mehmet Simsek as the new Minister of Finance.
Appointment of Muhammad Simsak as Minister of Finance
Source: dia images / euronews
President Erdogan faces an array of challenges and criticisms as he begins his term with the appointment of Şimşek, which is seen as a rare positive. Optimism swelled after the announcement that President Erdoğan might finally abandon his unorthodox approach to monetary policy and adopt a more conventional approach. Mr. Simsek previously worked as a banker at Merrill Lynch and returned to the political arena after a 5-year absence. It promises to be a tough role for Chemsk as the Turkish economy grapples with hyperinflation hovering around the 40% mark for now, while the lira continues to bear the brunt of the 10% gain ahead of today’s sell-off.
Among the policies that have drawn criticism is President Erdogan’s insistence on lowering interest rates to boost growth. This clearly runs counter to the conventional wisdom of raising interest rates when fighting inflation.
The economic outlook and the way forward
Hope for a policy pivot gained momentum today as state banks prepare to loosen defenses in a move seen as a positive sign of a policy shift. The lira saw a 7% drop today with no intervention likely to allow the lira to find a sustainable level, perhaps a sign of a return to free markets? This is likely key for Turkey as it looks to attract foreign investment again.
However, a sense of perspective is required, as President Erdogan, who describes himself as an enemy of interest rates, has a tendency to backtrack on decisions very quickly. This is evident when looking at the central bank governors as Erdoğan has been through 4 governors in the past five years.
Meanwhile, the post of central bank governor remains vacant, as Erdogan is considering appointing Hafiz Gay Erkan, chief financial officer in the United States. Reuters reported that Erkan met Şimşek in Ankara on Monday with the hope of many that the two would be able to convince Erdogan of the need for normalization in politics.
Introduction to technical analysis
Relative Strength Index (RSI)
Recommended by Zain Fouda
Technical outlook and final thoughts
Looking at the bigger picture, volatility is expected to remain high over the coming days. USDTRY continues to rally with little analysis in the way of price action as the movements have been very sudden and volatile.
The sell-off in the lira today is likely to be seen as early signs of a potential policy pivot with the lack of intervention boding well for Turkey and the lira in the medium and long term. Analysts are looking at the 25.0000-28.000 range as a target (sustainable level) for USDTRY which is realistic, but we might see some strong pullback before then. The 14 day RSI on both the daily and weekly time frame is in the overbought territory and might be worth watching given the lack of price action.
USD/TRY daily chart – June 7, 2023
Source: TradingView
Written by: Zain Fouda, market writer for DailyFX.com
Connect with Zain and follow her on Twitter: @employee