Analysts: Turkish lira to weaken regardless who wins elections

Bank of America Corp. analysts say the Turkish lira will weaken regardless of who wins the election in May. 

If the opposition wins, markets will see big swings until the new government announces a new economic framework and fill key posts in the administration, analysts including Zumrut Imamoglu wrote in a report on March 30. If President Recep Tayyip Erdogan’s administration holds on to power, the lira may see a “disorderly depreciation,” they said, Bloomberg reports. 

Another scenario that could push the lira lower is if the central bank decides to withdraw its currency interventions that have been propping up the market, the analysts said.  

“All indicators point to a need to re-balance the economy,” they wrote. “We believe that tightening in financial conditions, substantial cuts to non-earthquake spending and a depreciation of 15-25 per cent in the lira are necessary to achieve it.” 

The lira pushed to new lows this year, falling to 19 against the US dollar. Bank of America estimates fair value at around 24 per US dollar, based on a current account balance model.

If the opposition party wins and shifts Türkiye back to more fiscal and monetary policies, it could have dramatic implications for markets. Bank of America sees the country’s key policy rate reaching as high as 50 per cent, up from a current 8.5 per cent. The 10-year lira bond yield could peak at 30 per cent, triple the current level, they added.