Investing.com – The Turkish lira fell to a record low against the US dollar on Wednesday, as traders turned to President Recep Tayyip Erdogan’s newly elected government toward a more conventional monetary policy.
At 09:00 ET (13:00 GMT), it was trading up 7.2% at 23.0892, just below the pair’s record high of 23.2743 seen earlier in the session.
Erdogan appointed Mehmet Simsek as finance minister shortly after he won the country’s presidential election run-off at the weekend.
The market considered this appointment as a signal to return to more traditional monetary policies, leaving behind unconventional interest rate cuts in the face of high inflation that pushed the lira sharply lower.
However, this could see an immediate jump in inflation at the expense of the lira.
It fell to 39.59% in May, largely due to the government providing free natural gas. This policy could soon change as the government looks to rebuild its finances.
Data released last week showed that the central bank’s net foreign exchange reserves fell to an all-time low on May 26, standing at $4.4 billion.
Goldman Sachs revised its forecast for the Turkish lira late last week in the wake of President Recep Tayyip Erdogan’s renewed government, saying it now expects the currency to weaken to 28 against the dollar in 12 months from a previous forecast of 22.
However, the influential investment bank now believes that the pair may reach level 28 sooner than its previous one-year estimate.
This estimate reflects differences in inflation and external pressures on the lira and also assumes a smooth pace of depreciation. However, we believe our 12-month forecast could be reached sooner if the exchange rate adjustment continues ahead,” analysts at the bank wrote, in a note published on Wednesday.