As Turkey’s presidential election runoff approaches on Sunday, the country’s financial markets are experiencing heightened anxiety. Investors fear that if President Recep Tayyip Erdogan wins re-election, it could trigger further economic turbulence and lead to a sharp decline in the value of the Turkish lira.
In response to the uncertainty, the Turkish Central Bank has released new regulations aimed at limiting lending by banks, including measures to restrict cash withdrawals made on credit cards, which are often used as a more affordable alternative to traditional loans.
To ensure that these restrictions are enforced, the Central Bank has mandated that banks must hold additional low-yield government bonds for these types of transactions carried out by their customers.
Read more: Turkey’s foreign reserves saw $17 bn dip ahead of election
Ankara is concerned that the Turkish lira could depreciate after the upcoming presidential election, leading to a rush for cash advances to buy hard currency or gold as a hedge. This could harm Erdogan’s re-election prospects as demand for foreign exchange and gold has already risen in the lead-up to the election.
In a May 18 television interview, Vice President Fuat Oktay defended the new regulation limiting cash advances for high-income bank customers with card limits above 50,000 liras ($2,500).
The Turkish lira has hit a new low against the US dollar, reaching a record level of 19.87 lira to the dollar, as the country gears up for the presidential election runoff.
This comes after a tumultuous period for the Turkish currency, which has seen a 44% drop in value in 2021 and a 30% decline in 2022.
As the presidential election runoff approaches on Sunday, the focus is on the candidates: President Recep Tayyip Erdogan and opposition candidate Kemal Kilicdaroglu. The country’s economy, inflation, and cost of living are expected to play a significant role in shaping the election’s outcome.
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