The USD/TRY exchange rate surged to 20.47 in the morning, while the disparity between the free market rate and the informal market rate narrowed. The Turkish Lira suffered a significant blow on the final trading day before the upcoming second round of the presidential elections on May 28, as it continued to erode against major currencies.
During morning trading, the lira experienced a loss of over 1% against the US Dollar, with the USD/TRY exchange rate surging to 20.47. This marks an unprecedented low for the Turkish Lira, hitting rock bottom.
In the free market, as of 11.48 a.m., the US Dollar was seen hovering around the 20.00 range, while in the Grand Bazaar exchange rate, it reached a staggering 21 Turkish Lira.
Dual currency rate
Moreover, the gap between the volatile free market rates and the Grand Bazaar exchange rates witnessed a noticeable contraction, indicating some alignment between the two.
In Turkey, economists have recently observed the existence of a "dual exchange rate" system, which involves an official rate utilized in inter-bank transactions and a separate rate prevailing in the informal market.
Due to the scarcity of foreign exchange (FX) in the country, individuals seeking to acquire foreign currencies often resort to places like the historic Grand Bazaar in Istanbul.
Exploiting the FX shortage, traders within the Grand Bazaar sell dollars at higher prices than the official rate, making it a focal point for this type of trading activity.
Central Bank reserves
Meanwhile, recent data released by the Central Bank revealed a substantial decline in gross reserves, which plummeted by $3.5 billion, reaching a total of $101.5 billion.
The Central Bank's reserves witnessed a staggering $12.5 billion decrease in just two weeks and a massive $25 billion decrease within a span of two months.
Furthermore, net reserves hit a record low, plunging to -$0.2 billion. This marks a historic milestone as it signifies the first time in 21 years that net reserves have slipped into negative territory.
The economic landscape in Turkey remains volatile, with the upcoming election adding further uncertainty to the already challenging situation. Investors and market observers are closely monitoring these developments, awaiting further indications of the country's economic trajectory
Source: English Bianet