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The Turkish lira has reached a new low
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Latam FX is stable as the dollar declines
By Sruthi Shankar
May 29, Reuters – The Turkish lira fell to a record low on Monday as President Tayyip Erdogan’s victory over the weekend rattled investors, while most Latin American currencies rose on expectations that the United States will avoid a debt default.
The struggling lira fell 0.6% to a new record low of 20.10 to the dollar, adding to its 7% year-to-date decline and 90% decline over the past decade. Istanbul stock exchanges, however, rose in price that day.
Erdogan’s re-election extends his rule into a third decade, giving him another five years to continue the authoritarian policies that have polarized Turkey, which is grappling with a cost-of-living crisis, a falling currency and depleted foreign exchange reserves.
“Erdogan’s victory does not bring any reassurance to the foreign investor,” said Hasnain Malik, head of equity research at Tellimer. “A painful all-asset crisis is on the way, with very high inflation, very low interest rates and net foreign reserves.”
Investors are worried about the looming economic crisis, which has been hit by rising inflation and a possible extension of Erdogan’s unusual policy, which includes cutting interest rates to moderate rising prices.
“The TRY cut remains incredibly expensive, but the president’s preferred approach of cutting interest rates to fight inflation is likely to weaken it less over time,” said Elsa Lignos, head of FX strategy at RBC Capital Markets.
Meanwhile, most Latin American currencies rose against a weaker dollar after US President Joe Biden finalized a budget deal with House Speaker Kevin McCarthy to freeze the $31.4 trillion debt ceiling until Jan. 1, 2025, and said that the transaction is ready to go through. Congress for voting.
Trading volumes were light, however, as markets in the United States, the United Kingdom and several European countries were closed. Major Latin American stock markets were mixed. Brazil’s Bovespa fell 0.5%, while Chile’s S&P IPSA rose.
The Mexican peso rose half a percent to $17.55 amid a broader dollar slump, while the Brazilian real held steady at $4.99.
Economists expect Brazil’s inflation index to reach 5.71 percent by the end of this year, the central bank’s average weekly survey showed, down from 5.80 percent last week.
Finance Minister Fernando Haddad said on Friday that the country is about to enter a rate-cutting cycle, noting that inflation is “behaving more”. (Reporting by Sruthi Shankar and Amruta Khandekar in Bengaluru Editing by Alistair Bell)
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