The Turkish lira fell to a record low against the dollar

The Turkish lira fell to a record low of 20 against the dollar on Friday, ahead of Sunday’s presidential election that will determine whether President Recep Tayyip Erdogan will extend his rule for a third decade.

By 0413 GMT, the lira hit 19.9845 against the dollar, far from a record high of 19.9950 in early trade.

The Turkish lira came under pressure after the Turkish central bank on Thursday decided to keep interest rates unchanged at 8.5 percent, in line with expectations.

The Turkish Central Bank said in a statement that the underlying trend of inflation continued to improve.

“Maintaining supportive financial conditions is now critical to sustaining continued industrial production growth and favorable employment trends,” the bank said after its monthly policy meeting.

Turkish dollar-denominated sovereign stocks and bonds fell, while the cost of insuring exposure to Turkish debt from the first round of May 14 presidential elections rose.

Erdogan had a significant lead over his main rival, Kemal Kilidaroglu, in the first round, but fell short of the 50 percent of the vote he needed to avoid a run-off.

Nicholas Farr, emerging markets economist at Capital Economics, said Erdogan’s expected victory reduced the prospect of a “much-needed” rate hike.

“The Turkish economy needs higher interest rates and a departure from the current policy framework to address large economic imbalances,” he added in a note.