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Turkish lira threatened by Erdogans’s presidency? – Rabobank

FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank, assesses the probable implications for the TRY after the recent victory of PM R.T.Erdogan.

Key Quotes

“As widely anticipated Prime Minister Recep Tayyip Erdogan won first direct presidential elections securing 51.8% of votes followed by Ekmeleddin Ihsanoglu with 38% and Selahattin Demirtas with 9% according to preliminary results. While the president has mainly ceremonial role in Turkey, Erdogan made it clear that he intends to change that and become a powerful head of state: “My wish is to transform Turkey to a presidential system”.

“There is no denying that under Erdogan’s leadership Turkey has become an economic powerhouse over the past decade, strengthened its important position in the region and on the global political scene as well. However, instead of becoming a beacon of democracy and a template for other Muslim states in the region, Erdogan leads Turkey towards some form of an authoritarian regime”.

“At this stage foreign investors are not seriously concerned with Erdogan’s dictatorial style of governing. However, if Erdogan, who clearly wants to be in charge of everything in Turkey including monetary policy, forces the central bank to cut interest rates far more aggressively than the market currently anticipates, this would leave Turkish assets far more vulnerable to negative offshore factors with main focus on geopolitics at this stage”.

“Any measures that would seriously undermine CBT’s independence would leave the lira particularly vulnerable against the US dollar (break above 2.20~ would be another constructive s/t signal for USD/TRY). Givenour bearish view on the single currency, we do not expect EUR/TRY to gain very strong upside traction with gains contained June’s high at 2.2953 (break higher would expose 3.00) with the downside seen limited at around 2.80”.

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