Skip to content Skip to Search
Skip navigation

Turkish lira hits record low after post-election rout

Turkey lira Reuters
The lira has lost more than 90 percent of its value over the past decade

Turkey’s lira weakened to a record low against the dollar on Thursday, after incumbent Recep Tayyip Erdoğan’s lead in presidential elections surprised markets, while the nation’s sovereign dollar bonds steadied after a three-day post-election rout.

The cost of insuring the country’s debt against default fell slightly, but equity markets and banking stocks endured fresh losses in afternoon trading.

Erdoğan’s stronger-than-expected showing in Sunday’s vote has rattled markets that were betting on an end to his more than two-decade rule and the unorthodox economic policies that have come to characterize it.

Erdoğan will face challenger Kemal Kılıçdaroğlu in a May 28 runoff vote.

The lira weakened to a record low of 19.8050 to the dollar by 1904 GMT, bringing its losses since the election to more than one percent. The currency lost 44 percent in 2021 and 30 percent in 2022 due to a series of interest rate cuts despite high inflation that were part of Erdogan’s unorthodox economic strategy.

The 2045 bond gained close to one cent to trade at just over 70 cents on the dollar by 1300 GMT, Tradeweb data showed.

Three straight days of losses saw many of the longer-dated issues more than 10 cents below the Friday close and some are trading below the 70 cent mark that analysts broadly consider the threshold for distressed territory.

Credit default swaps, which measure the cost of insuring the country’s debt against default, narrowed by eight basis points (bps) by mid afternoon, to 684 bps, data from S&P Global Market Intelligence showed. Earlier in the day they had reached 696, compared with around 480 bps before the election.

Turkey’s main banking stocks index lost a further 3.64 percent on Thursday, and was down by 20.7 percent from its pre-election close, while its overall equities index closed 3.43 percent lower on the day.

Separately, central bank data showed foreign investors cut their exposure to local stocks and bonds in the run up to the election: their bond holdings fell by $31.3 million in the week to May 12, and their stock holdings declined by $135.1 million.

Central bank data also showed that net international reserves dropped to a more than 21-year low of $2.33 billion in the week to May 12 as demand for foreign currency surged ahead of the elections.

Turkish banks have restricted access to some individual loans and postponed decisions on extending corporate loans following new regulations introduced since Sunday’s inconclusive presidential vote and ahead of the runoff, bankers said.