Turkey: Snap elections will not resolve economic risks

5 min

President Erdogan today announced early elections to be held on 24 June, bringing presidential and legislative polls forward by more than a year. Local financial markets have rallied upon the news, perhaps reflecting hopes that this will reduce political uncertainty. Over the past month, the Turkish lira (TRY) was under significant pressure; and on 12 April, it fell to new lows against the USD (1:4.15) and the EUR (1:5.14). Despite today’s rally, the TRY remains one of the worst performing Emerging Markets currencies this year, down -6% vs. the USD and -10% vs. the EUR in 2018 YTD at the time of writing. However, as early elections raise the risk of too loose monetary policy ahead of the vote, they will rather exacerbate than mitigate the large and rising external vulnerabilities and mounting overheating concerns that Turkey currently faces (see also WERO 4 April 2018 and WERO 22 March 2018). Hence we expect the TRY to come under renewed pressure in the next weeks.