Turkish lira expected to benefit from greater certainty

By Gokhan Kurtaran

LONDON

The Turkish lira is likely to rally against the U.S. dollar in the near-term following the vote to introduce a presidential system in Turkey, analysts said Friday.

Sunday’s vote on an 18-article bill that would introduce an executive presidency was narrowly approved by voters. President Recep Tayyip Erdogan had pledged that a Yes vote would pave the way for economic and social stability.

“We foresee near-term appreciation in the lira,” Gautam Kalani, FX economist and an emerging markets strategist at Deustche Bank, said.

“The key point in that since the referendum, there has not been much reaction and now we are starting to see that in the last one or two days.”

The lira currently stands at around 2.65 to the dollar.

Kalani added: “The referendum being completed means that one key event is out of the way, while the lira remains cheap and positioning very light.

“We believe the lira could appreciate around 3-4 percent in the next three months.”

Following the Yes win, the likelihood of an early general election has receded, Nafez Zouk, a senior economist at the London-based Oxford Economics think tank, said.

He predicted the lira could be 3.5 to the dollar by the end of the year.

“Before a sustainable rally in the lira is possible, the ruling Justice and Development Party and President Erdogan need to demonstrate that they are serious about using the remaining two-and-a-half years before the next election to get the economic reform agenda back on track,” he said.

Timothy Ash, a senior emerging market strategist at London-based BlueBay Asset Management, said overcoming political uncertainty would encourage Turkey’s economy.

“The local lira still cheap on a historical real effective exchange rate basis, positioning still favourable,” he said.

“The Turkish Central Bank has tightened policy and Turkey offers double digits yields which are rare these days even in emerging markets.”