Turkey’s currency is likely to depreciate in 2023

Significance

The stability of the lira since June 2022 is primarily a result of President Recep Tayyip Erdogan’s government shoring up the currency despite cutting interest rates. The authorities are eager to curtail inflation ahead of the May presidential and parliamentary elections.

Impacts

• Official annual consumer price inflation may prove 'sticky' at about 40% year-on-year by end-2023.
• The lira is likely to remain weak enough to keep Turkey’s export and tourism sectors competitive.
• Risks related to exchange rate-guaranteed bank accounts, negative real interest rates and the banks may persist into 2024.