TRY: Five more years with Erdogan – Nordea Markets

Despite some uncertainty about the outcome of both the presidential and parliamentary elections, Turkish President Erdogan maintained his grip on power with a sweeping victory, notes Morten Lund, Research Analyst at Nordea Markets.

Key Quotes

“Despite some uncertainty about especially the outcome of the parliamentary election, current President Erdogan and his party block AKP/MHP (Justice and Development Party & Nationalist Movement Party) came out as winners in both occasions. Hence, Erdogan is set for five more years with a new executive presidency and a simple majority in hand.”

“Although President Erdogan’s tight grip on the central bank demanding too low interest rates is the main reason why the TRY is so weak, the initial reaction in the markets after Erdogan’s win has been slightly on the positive side with USD/TRY (and EUR/TRY) trading lower.”

“Nonetheless political uncertainty remains in Turkey and consequently, we expect this mild TRY appreciation to be short-lived. The big question is now whether President Erdogan will allow the central bank to act with more flexibility, which we have seen some positive signs of during the past month.”

“A political risk premium is still attached to the Turkish lira and we should not expect to see a much stronger TRY, before Erdogan allows the central bank to act with more flexibility and thereby restores its credibility.”