The Turkish lira fell some 7% to a record low Wednesday, propelled by what is said to be likely the loosening of stabilizing measures for the currency as markets weigh the economic policies of the newly elected government.
The lira breached the 23-to-the-dollar mark Wednesday morning and traded at 23.16 at 1:00 p.m. local time, bringing its decline this year to over 19%.
President Recep Tayyip Erdoğan, who was reelected on May 28 to extend his rule into a third decade, announced his new Cabinet at the weekend and reshuffled his economic team.
Erdoğan named Mehmet Şimşek, a former deputy prime minister who is well regarded by foreign investors, as treasury and finance minister.
Şimşek served as finance minister between 2009 and 2015 and deputy prime minister in charge of the economy until 2018.
Soon after taking office, the former Merrill Lynch economist said: "We have no choice but to return to the rational ground."
Analysts say Şimşek's appointment and his remarks could signal the government's departure from economic policies centered on low-interest rates to fight stubborn inflation, among others.
The government has urged monetary stimulus over the last several years, aiming to achieve price stability by slashing borrowing costs, boosting exports and flipping chronic current account deficits to surpluses.
Markets are also waiting for the appointment of a new central bank governor to replace Şahap Kavcıoğlu, who spearheaded the easing drive that saw the monetary authority slashing the benchmark policy rate to 8.5% from 19% in 2021.
According to bankers, the lira's gradual depreciation will lead to improved market conditions and halt a decline in central bank reserves.
"(The) lira is getting closer every day to a level that will not need to be defended with reserves. I expect losses to continue for a while," a forex trader said, adding sharp intraday losses show the currency is nearing "expected levels."
Some analysts expect the lira to weaken toward a range of 25-28 against the dollar.
Erdoğan is said to be considering appointing Hafize Gaye Erkan, a senior finance executive in the United States, as central bank governor, media reported on Monday.
A former co-CEO at First Republic Bank and managing director at Goldman Sachs, Erkan met with Şimşek in Ankara on Monday and is reportedly due to meet Erdoğan soon.
Erkan's policy leanings are unclear given she has no formal monetary policy experience in her career spanning Wall Street and U.S. corporate boardrooms, and her Ivy League education includes a financial engineering Ph.D. from Princeton.
In her early 40s, Erkan would be the country's fifth central bank chief in four years.
She was at First Republic from 2014 to 2021 in roles that included president, board member and chief investment officer, before she resigned in a surprise move more than a year ago.
This year, the San Francisco-based lender became the largest U.S. bank to fail since 2008 after it was seized by regulators and sold to JPMorgan.
Erkan is a director on the board of Marsh McLennan, a Fortune 500 firm, and was named CEO at Greystone, a real estate finance and investment firm, last year.