Turkey's lira plunged 7% to a record low on Wednesday in its biggest selloff since a historic 2021 crash, a move traders said is a "strong signal" that Ankara is moving away from state controls toward a freely traded currency,
Reuters reports.
The currency has come under increasing pressure since President Tayyip Erdogan was re-elected on May 28. It was trading at 23.18 against the dollar at 1500 GMT, after touching a record low of 23.19, bringing its losses this year to around 20%.
Under Erdogan's unorthodox programme, authorities have taken a hands-on role in foreign exchange markets, using up tens of billions of dollars of reserves this year alone to hold the lira steady. The central bank's net forex reserves hit an all-time low of negative $4.4 billion last month as demand surged through the elections.
But Erdogan signaled a u-turn at the weekend when he named Mehmet Simsek, a former deputy prime minister who is well regarded by foreign investors, as finance minister. Simsek later said economic policy needed to return to "rational" ground and on Wednesday said there were "no quick fixes" for policy.
Four traders said the decline in the central bank's forex and gold reserves had stopped as of last week, and could begin to recover, along with signs of the change in forex policies.
Though many regulations need to be changed, "the destination is becoming clearer every day: We are going towards the lira's value being determined by market conditions," one trader said.
