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Erdoğan’s sweeping election victory has limited effect on Turkish lira

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President Recep Tayyip Erdoğan’s re-election had only a limited effect on the Turkish lira on Monday, despite a sweeping victory.

While in the early morning gaining some 3 percent against the US dollar, during the day the lira slipped back to a value seen before the snap elections on Sunday.

Around 7 p.m. local time, the lira was valued at 4.7 to the dollar.

“So far, there is little to suggest that the election will result in a new macro policy framework, which is required, in our view,” Bloomberg quoted an analyst from Morgan Stanley as saying.

“As such, the election result suggests status quo, which in recent years has not produced positive results for asset prices,” the analyst added.

According to a Commerzbank note after the election results were announced, the risks for Turkey’s central bank and its monetary policy have increased.

“The central bank will also be hesitant to raise interest rates when the lira comes under pressure. The FX market will re-enter a ‘guessing mode’ about the central bank’s ability to hike rates — and that is a disaster,” the note said.

President Erdoğan had made his intentions clear about tightening his grip on economy management during a trip to London in May.

Murat Toprak from HSBC’s London office said in a note to clients that if Turkey focused more on inflation rates instead of growth, the lira could recoup its value losses.

Societe Generale strategist Phoenix Kalen, on the other hand, said they maintain their expectations for the lira’s valuation at 5.18 against the dollar for the end of this year, stressing that the central bank’s independence would be at risk.

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