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Turkish President Erdoğan visiting the tomb of Kemal Atatürk, the founder of the Turkish Republic, at the beginning of June

Photo: ADEM ALTAN / AFP

The nomination of Turkey's new finance minister was supposed to calm the markets – and signal that re-elected President Recep Tayyip Erdoğan now wants to make a serious effort to get a grip on the country's currency crisis. After all, Mehmet Simsek is an internationally respected expert on economic policy (in contrast to his employer Erdoğan).

But the signal to the markets seems to be fizzling out. The decline of the Turkish currency lira continues. The depreciation is even accelerating. The lira recorded its biggest one-day loss in two years. The dollar and euro, on the other hand, rose by around seven percent each to record highs of 23.04 and 24.62 lira respectively.

Return to rationality?

Simsek, who was finance minister in 2009 and 2018, announced his country's return to "rational foundations" in economic and financial policy over the weekend. However, markets are also waiting for the appointment of a new central bank governor. Turkey is in crisis and struggling with high inflation, which at times exceeded 85 percent last year. One reason for this is that the central bank did not raise the key interest rate according to economic doctrine, but lowered it at Erdoğan's request.

According to analysts, investors were skeptical about whether Simsek's convocation would stabilize the lira. "A finance minister does not make a monetary policy summer," said Commerzbank expert Ulrich Leuchtmann. "The award of office is a perhaps necessary, but by no means sufficient condition for an actual permanent U-turn in monetary policy." In the very best case, monetary authorities could push through short-term interest rate hikes, but not a permanent turn towards a stability-oriented monetary policy.

The Turkish lira, which has already depreciated significantly in the face of Erdoğan's economic and monetary policies, has crumbled by around 20 percent against the dollar since the beginning of the year. In 2021, it had crashed by 44 percent, and in 2022 by another 30 percent. The weak national currency makes imports, on which the resource-poor country depends, noticeably more expensive.

dpa/Reuters