Supporters wave flags as President Recep Tayyip Erdogan speaks from a balcony in Ankara, Turkey, May 15, 2023.
Diameter Image | Getty Images News | Getty Images
this turkish lira The pair is nearing another all-time low as Turkey’s presidential election enters an unprecedented run-off, with one analyst predicting further weakness in the near-term.
“Unfortunately, as many as 49 percent of Turks voted for an economic crisis … In the next two weeks, we could see a currency collapse,” said Mike Harris, founder of consultancy Cribstone Strategic Macro. CNBC, referring to the reported vote count for President Recep Tayyip Erdogan.
With more than 99 percent of the vote counted, Erdogan led with 49.46 percent of the vote, according to Turkey’s Supreme Election Council (YSK), while main opposition contender Kemal Kieran, who promised to bring change and economic reforms, Lida Roglu received 44.79% of the vote.
YSK confirmed on Monday afternoon that the presidential election will indeed go to a runoff on May 28. Neither Erdoğan nor Kilidaroglu, in their 20 years in office, have crossed the 50 percent threshold needed for outright victory.
“With the Turkish lira near record lows due to uncertainty over the election outcome, the short-term outlook is bearish,” said Steven Schoenfeld, chief executive of MarketVector, explaining that the lira could lose value as part of major economic reforms when the opposition takes power.
As of 1pm London time on Monday, the currency was trading at 19.66 to the dollar.
“Erdogan’s remarkable performance in the first round represents one of the worst-case scenarios for Turkish assets and the lira,” said Wells Fargo emerging markets economist Brendan Kenner.
He expects a “sharp sell-off” in the lira in the near future and sees lira/dollar crosses reaching 23 by the end of June.
Kilicdaroglu is campaigning on the premise of restoring more orthodox economic policies and reining in Turkey’s high inflation.
Türkiye’s Istanbul Stock Exchange early Monday issue breaker That came after the benchmark index plunged more than 6% in premarket trading on Monday. It has resumed trading. Türkiye’s ISE country 100 index fell nearly 3 percent.
MarketVector’s Schoenfeld told CNBC in an email that Turkish stocks are down about 15% so far this year, “in stark contrast to a return of nearly 90% in 2022.”
“The outlook is uncertain at best, but if the opposition wins the runoff election and takes power in June, the long-term outlook for Turkish stocks will be positive,” he said.
Dollar-denominated Turkish sovereign bonds also sold off overnight after the news. They fell 7 cents before retreating slightly, according to Reuters. Turkey’s credit-default swaps, mainly the cost of insuring against a government default, briefly rose by 114 basis points, according to Reuters data.
Erdogan victory in sight?
Some analysts believe that Erdogan’s chances of victory have greatly improved after the results of Sunday’s vote were announced.
Selva Demiralp, a professor of economics at Istanbul’s Koč University, said the chances of Erdogan staying in office had “increased significantly”. She’s not the only one who believes this.
A person votes for Turkey’s parliamentary and presidential elections at a polling station in Ankara, May 14, 2023.
Adam Altan | AFP | Getty Images
“I think (Erdogan) is in a very good position to get the 50 percent of the popular vote he needs to become president again in the second round,” said Can Selcuki, managing director of Istanbul Economic Research and Consulting.
Selcuki noted that while average households have been enduring high inflation, the coalition Erdogan has managed to piece together appears to be close to the threshold that would allow him to pass 50%.
A relatively clearer prediction of who will win could bring some calm to markets, at least in the days leading up to the runoff.
“There’s been less volatility these two weeks now because Erdogan and the majority in parliament are very comfortable about winning in the second round … so I think the uncertainty is higher than we were a week ago Much smaller was expected,” Selchuki continued.
(The current government) will take the election result as confirmation of their success and maintain the current path of low interest rates while imposing tighter financial repression.
selva de mirap
Professor of Economics, Koç University
Beyond the runoff, however, was a feat that was harder to measure.
“Periods beyond the next two weeks are harder to predict,” says Koç University’s Demiralp.
“I expect existing capital controls to become more stringent, so Turkey will move to a less open economy.”
Turkey’s monetary policy emphasizes the pursuit of growth and export competition rather than calming inflation. Erdogan subscribes to the unconventional view that raising interest rates will increase rather than curb inflation. And the likelihood of his victory means such policies are likely to remain.
“(The current government) will take the election result as confirmation of their success and maintain the existing path of low interest rates while imposing tighter financial repression,” Demiralp said. “I’m afraid these policies will only increase the cost that will eventually be paid.”
