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Currency exchange in Istanbul: capital flight abroad


Emrah Gurel / dpa

President Recep Tayyip Erdogan's victory in Sunday's presidential election has brought millions of revelers to the streets. But at least as many people find the prospect of a third decade of his increasingly authoritarian rule unenticing.

The situation on the financial markets is similarly ambivalent: while share prices have recovered, the lira has once again lost massive value. Turkey's national currency fell to 20.1050 to the dollar, breaking the previous record low set last Friday. Since the beginning of the year, the losses now add up to more than seven percent. If you look at the last ten years, it is even more than 90 percent – crushed by an economy oscillating between boom and recession phases and rampant inflation.

Gloomy outlook for the economy

Experts are rather pessimistic about the near future: "There is a great fear of sticking to the current economic policy," says financial market expert Thomas Gitzel of VP Bank. "At its peak, the inflation rate was over 86 percent, while the key interest rate rose to just 12.5 percent." In the meantime, the key interest rate has been lowered again to 8.5 percent, although the inflation rate is still above 40 percent. "But that won't be enough to cope with the high inflation rates," said Gitzel.

"Without a U-turn in his economic policy, there is a risk of an acute currency crisis," Minna Kuusisto, chief analyst at Danske Bank, said of Erdogan. After the currency crisis in 2021, the Turkish authorities had intervened more and more in the foreign exchange markets. Daily fluctuations became unnaturally small, while foreign exchange and gold reserves dwindled.

The lira's price movements since the beginning of November have been correspondingly small, fluctuating by more than 0.25 percent on only a few days. All the more remarkable is Monday's price drop of 0.58 percent. The selling pressure is not coming from foreign asset managers, explains Marc Chandler, chief market strategist at Bannockburn Global FX. The lira has far too little weight in international portfolios for this. "It's more capital that wants to leave Turkey than foreigners selling the lira."