The USD/TRY pair is hitting new all-time highs every day as the Turkish elections are approaching. US Dollar To Lira exchange rate is currently at its highest level in history as the inflation in Turkiye keeps surging. In this article, we will discuss the key reasons behind the devaluation of the Turkish Lira and the effect of the upcoming elections on the exchange rate.
On Friday, USD/TRY showed minor gains again as the dollar strength index rose by 0.27%. This also translated into a weekly gain of 0.7% and the fourth green week in a row. Considering the whole month, Turkish Lira devalued by 1.63% in March.
Turkish Lira Devalues Due To Low-Interest Rates
For the past few years, Turkiye has been a country with one of the highest inflation. According to the official stats from the Turkish government, the inflation rate has hit 55%. This has devalued the local currency a lot as the cost of living has gone up significantly. While most countries hike their interest rates in such scenarios to reduce the currency in circulation, the Turkish president has a different view.
Due to the influence of the president, Recep Tayyip Erdoğan, the hand of the Central Bank of the Republic of Türkiye (CBRT) are tied. This approach of keeping the rates lower despite soaring inflation has resulted in a massive backlash from global analysts to the point that they now don’t see USD/TRY dropping anytime soon.
USD/TRY & Turkish Elections
Turkish general elections are scheduled for 14 May 2023. This election may prove to be critical for the Turkish Lira as a new regime might have a different approach. While many analysts think that it’s too late to control Dollar to Lira, many still remain optimistic.
There is still more than a month left till the people of Turkiye vote for their new president. During this time USD/TRY forecast remains in favor of the US dollar. This is because, unlike the Turkish government, the US Federal Reserve has been hiking interest rates for more than a year. This has resulted in a surge in DXY Index, which tracks US Dollar against major currencies.