Turkish lira declines to record lows following start of Erdogan's new presidential term

A man carries goods in a street market at Eminonu commercial area in Istanbul, Turkiye, June 7, 2023. (AP Photo/Francisco Seco)

ANKARA, Turkiye -

The Turkish lira tumbled to a fresh record low Wednesday, extending its slide against the U.S. dollar since President Recep Tayyip Erdogan started his third term.

The lira weakened by around 7% on Wednesday, hitting 23.18 against the dollar. The decline took the currency's loss since Erdogan's inauguration Saturday and appointment of a new government to more than 8%. The currency has weakened by around 20% since the start of the year.

The lira also weakened by more than 7% against the euro on Wednesday.

The Turkish currency has declined in value since 2021 due to what economists say is Erdogan's insistence on keeping borrowing costs low to stimulate growth despite skyrocketing inflation. The policy runs contrary to conventional economic approaches that call for higher interest rates to tame inflation.

Analysts say Erdogan's government propped up the lira in the run-up to Turkiye's presidential and parliamentary elections last month, using foreign currency reserves to keep the exchange rate under control. The lira's weakening suggested the government was slackening its control of the currency.

Inflation in Turkiye peaked to a staggering 85% in October before easing to 39.59% in May.

On Saturday, Erdogan reappointed Mehmet Simsek, an internationally respected former banker, as treasury and finance minister in his new cabinet. The appointment was viewed as a sign that Erdogan's new administration might pursue more conventional economic policies.

Simsek, a former Merrill Lynch banker who previously served as finance minister and deputy prime minister under Erdogan, returned to the cabinet after a five-year break from politics. At a ceremony on Sunday, he said Turkiye had no other option than to return to a "rational ground."

In a tweet posted Monday shortly after he took the oath of office in parliament, Simsek vowed to oversee Turkiye's finances with "transparency, consistency, accountability and predictability."

"As we navigate through domestic and international challenges, we affirm our commitment to rules-based policymaking to enhance predictability," he wrote. "While there are no short cuts or quick fixes, rest assured that our experience, knowledge (and) dedication will help us overcome potential impediments ahead. Our immediate priority is to strengthen our team and design a credible program."