According to Bloomberg, analysts at major US bank Morgan Stanley forecast a potential 29% decrease in the Turkish lira against the US dollar if Recep Erdogan, who won his third presidential term recently, continues advocating for low interest rates. This forecast has led many traders to shift their focus from the euro/dollar pair to the lira/dollar.

The analysts suggest that the dollar could reach 26 lira in the near future and potentially rise to 28 lira by the end of the year if Turkey doesn’t change its monetary policy direction. To stabilize the exchange rate, it is advised that the president prioritize disinflation and pursue a market-oriented approach. Failure to do so could result in Turkey’s external financing needs remaining vulnerable and increasing sensitivity to global shocks, such as fluctuations in commodity prices.

Since the beginning of 2023, the lira has already depreciated by 6% against the dollar and by 40% throughout 2022. One of the reasons for the lira’s weakness is attributed to Erdogan’s economic model, which prioritizes export development and stimulates economic growth through low interest rates.

Bloomberg highlights that Erdogan’s monetary policy has not only led to the weakening of the national currency but also triggered an outflow of foreign capital. As a result, the total value of foreign assets invested in Turkish stocks and bonds has declined by nearly $130 billion, representing an approximately 85% decrease since 2013.

Earlier we reported that the U.S. debt dispute was a threat to the dollar.